UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
or
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
or
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report______________
For the transition period from _______________ to ________________
Commission File Number
(Exact name of Registrant as specified in its charter) |
Not Applicable
(Translation of Registrant’s name into English)
British Columbia,
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
Tel:
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
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Title of Each Class |
| Trading Symbol |
| Name of Each Exchange on Which Registered |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Not Applicable
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
Not Applicable
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
There were
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ☐ Yes ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer | ☐ | Accelerated Filer | ☐ | ☒ | Emerging Growth Company | ☐ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐ | Other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS.)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐
TABLE OF CONTENTS
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| Material Modifications to the Rights of Security Holders and Use of Proceeds |
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| Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
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Nomenclature
In this Annual Report on Form 20-F, which we refer to as the “Annual Report”, except as otherwise indicated or as the context otherwise requires, the “Company”, “Avino”, “we”, “our” or “us” refers to Avino Silver Gold Mines Ltd. and its subsidiaries.
You should rely only on the information contained in this Annual Report. We have not authorized anyone to provide you with information that is different. The information in this Annual Report may only be accurate on the date of this Annual Report or on or as at any other date provided with respect to specific information.
Forward-looking Statements
Certain statements contained in this document, other than statements of historical fact, including, without limitation, those concerning the economic outlook for the silver mining industry, expectations regarding silver prices, production (or, “extracting and processing resources”), cash costs and other operating results, growth prospects and outlook of the Company’s operations, individually or in the aggregate, including the commencement of extracting and processing resources at levels intended by management at certain of the Company’s projects, the Company’s liquidity and capital resources and capital expenditures, and the outcome and consequences of any potential or pending litigation or regulatory proceedings, contain forward-looking statements regarding the Company’s operations, economic performance and financial condition.
These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company’s actual results, performance or achievements to differ materially from the anticipated results, performance or achievements expressed or implied in these forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Accordingly, results could differ materially from those set out in the forward-looking statements as a result of, amongst other factors, changes in economic and market conditions, success of business and operating initiatives, changes in the regulatory environment and other government actions, fluctuations in silver prices and exchange rates, political changes in Mexico, competition for resource properties and infrastructure in the mineral exploration industry, the Company’s ability to obtain additional financing, and business and operational risk management and other factors as determined in “Item 3.D. Key Information – Risk factors” and elsewhere in this annual report. These factors are not necessarily all of the important factors that could cause the Company’s actual results to differ materially from those expressed in any forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results.
The Company undertakes no obligation to update publicly or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events, except as may be required by law. All subsequent written or oral forward-looking statements attributable to the Company or any person acting on its behalf are qualified by the cautionary statements herein.
Currency
Effective January 1, 2017, the Company changed its presentation currency to US dollars from Canadian dollars. The Company believes that the change in presentation currency will provide shareholders with a better reflection of the Company’s business activities and to enhance the comparability of the Company’s financial information to its peers. All references to dollar amounts are expressed in the lawful currency of the United States of America, unless indicated otherwise. Per share amounts are expressed in United States dollars, unless indicated otherwise. All references to Canadian dollars will be indicated with a “C$”.
Foreign Private Issuer Filings
We are considered a “foreign private issuer” pursuant to Rule 405 promulgated under the Securities Act of 1933, as amended (the “Securities Act”). In our capacity as a foreign private issuer, we are exempt from certain rules under the Exchange Act that impose certain disclosure obligations and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of our common shares. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as United States companies whose securities are registered under the Exchange Act. In addition, we are not required to comply with Regulation FD, which restricts the selective disclosure of material information.
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For as long as we are a “foreign private issuer” we intend to file our annual financial statements on Form 20-F and furnish our quarterly financial statements on Form 6-K to the SEC for so long as we are subject to the reporting requirements of Section 13(g) or 15(d) of the Exchange Act. However, the information we file or furnish will not be the same as the information that is required in annual and quarterly reports on Form 10-K or Form 10-Q for U.S. domestic issuers. Accordingly, there may be less information publicly available concerning us than there is for a company that files as a domestic issuer.
We will continue to file our Forms 20-F or 6-K until we are no longer a foreign private issuer. We are required to determine our status as a foreign private issuer on an annual basis at the end of our second fiscal quarter. We would cease to be a foreign private issuer at such time as more than 50% of our outstanding voting securities are held by United States residents and any of the following three circumstances applies: (1) the majority of our executive officers or directors are United States citizens or residents; (2) more than 50% of our assets are located in the United States; or (3) our business is administered principally in the United States. If we lose our “foreign private issuer status” we will be required to comply with Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirement for “foreign private issuers”.
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Glossary of Mining Terms
agglomeration | Cementing crushed or ground rock particles together into larger pieces, usually to make them easier to handle; used frequently in heap-leaching operations. |
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anomalous | A value, or values, in which the amplitude is statistically between that of a low contrast anomaly and a high contrast anomaly in a given data set. |
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anomaly | Any concentration of metal noticeably above or below the average background concentration. |
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assay | An analysis to determine the presence, absence or quantity of one or more components. |
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Breccia | A rock in which angular fragments are surrounded by a mass of finer-grained material. |
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cretaceous | The geologic period extending from 135 million to 65 million years ago. |
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cubic meters or m3 | A metric measurement of volume, being a cube one meter in length on each side. |
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cyanidation | A method of extracting exposed silver or gold grains from crushed or ground ore by dissolving it in a weak cyanide solution. |
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diamond drill | A rotary type of rock drill that cuts a core of rock that is recovered in long cylindrical sections, two centimeters or more in diameter. |
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fault | A fracture in a rock where there has been displacement of the two sides. |
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grade | The concentration of each ore metal in a rock sample, usually given as weight percent. Where extremely low concentrations are involved, the concentration may be given in grams per tonne (g/t or gpt) or ounces per ton (oz/t). The grade of an ore deposit is calculated, often using sophisticated statistical procedures, as an average of the grades of a very large number of samples collected from throughout the deposit. |
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hectare or ha | An area totaling 10,000 square meters. |
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highly anomalous | An anomaly which is 50 to 100 times average background, i.e. it is statistically much greater in amplitude. |
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induced polarization (IP) | A method of ground geophysics surveying employing an electrical current to determine indications of mineralization. |
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Inferred Mineral Resource | That part of a Mineral Resource for which quantity and grade or quality can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade continuity. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes.
Confidence in the estimate is insufficient to allow the meaningful application of technical and economic parameters or to enable an evaluation of economic viability worthy of public disclosure. |
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Indicated Mineral Resource | An Indicated Mineral Resource is that part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics are estimated with sufficient confidence to allow the application of Modifying Factors in sufficient detail to support mine planning and evaluation of the economic viability of the deposit. Geological evidence is derived from adequately detailed and reliable exploration, sampling and testing and is sufficient to assume geological and grade or quality continuity between points of observation. |
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Measured Mineral Resource | A Measured Mineral Resource is that part of a Mineral Resource for which quantity, grade or quality, densities, shape, and physical characteristics are estimated with confidence sufficient to allow the application of Modifying Factors to support detailed mine planning and final evaluation of the economic viability of the deposit.
Geological evidence is derived from detailed and reliable exploration, sampling and testing and is sufficient to confirm geological and grade or quality continuity between points of observation.
A Measured Mineral Resource has a higher level of confidence than that applying to either an Indicated Mineral Resource or an Inferred Mineral Resource. It may be converted to a Proven Mineral Reserve or to a Probable Mineral Reserve |
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Mineral Reserve | A Mineral Reserve is the economically mineable part of a Measured or Indicated Mineral Resource demonstrated by at least a Preliminary Feasibility Study. This Study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction could reasonably be justified. A Mineral Reserve includes diluting materials and allowances for losses that may occur when the material is mined.
Mineral resources are sub-divided in order of increasing confidence into Probable Mineral Reserves and Proven Mineral Reserves. A Probable Mineral Reserve has a lower level of confidence than a Proven Mineral Reserve. The term “mineral reserve” need not necessarily signify that extraction facilities are in place or operative or that all governmental approvals have been received. It does signify that there are reasonable expectations of such approvals. |
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Mineral Resource | A concentration or occurrence of diamonds, natural solid inorganic material, or natural solid fossilized organic material including base and precious metals, coal, and industrial minerals in or on the Earth’s crust in such form and quantity and of such a grade or quality that it has reasonable prospects for economic extraction. The location, quantity, grade, geological characteristics and continuity of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge.
A Mineral Resource is an inventory of mineralization that under realistically assumed and justifiable technical and economic conditions might become economically extractable. |
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mineralization | Usually implies minerals of value occurring in rocks. |
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Modifying Factors | Modifying Factors are considerations used to convert mineral resources to mineral reserves. These include, but are not restricted to, mining, processing, metallurgical, infrastructure, economic, marketing, legal, environmental, social and governmental factors. |
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net smelter returns (NSR) royalty | Payment of a percentage of net mining revenue after deducting applicable smelter charges. |
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NI 43-101 | National Instrument 43-101, Standards of Disclosure for Mineral Projects, adopted by the Canadian Securities Administrators in Canada. |
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Oxide | A compound of oxygen and some other element. |
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ore | A natural aggregate of one or more minerals which may be mined and sold at a profit, or from which some part may be profitably separated. |
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prefeasibility study and preliminary feasibility study | Each means a comprehensive study of the viability of a mineral project that has advanced to a stage where mining method, in the case of underground mining, or the pit configuration, in the case of open pit mining, has been established, and which, if an effective method of mineral processing has been determined, includes a financial analysis based on reasonable assumptions of technical, engineering, operating and economic factors, and the evaluation of other relevant factors which are sufficient for a qualified person, acting reasonably, to determine if all or part of the mineral resource may be classified as a mineral reserve. |
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Probable Mineral Reserve | Is the economically mineable part of an Indicated and, in some circumstances, a Measured Mineral Resource demonstrated by at least a Preliminary Feasibility Study. This Study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified. |
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Proven Mineral Reserve | Is the economically mineable part of a Measured Mineral Resource demonstrated by at least a Preliminary Feasibility Study. This Study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction is justified.
The term should be restricted to that part of the deposit where production planning is taking place and for which any variation in the estimate would not significantly affect potential economic viability. |
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quartz | Silica or SiO2, a common constituent of veins, especially those containing silver and gold mineralization. |
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Tailings | Material rejected from a mill after most of the recoverable valuable minerals have been extracted. |
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ton | Imperial measurement of weight equivalent to 2,000 pounds. |
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Tonne | Metric measurement of weight equivalent to 2,205 pounds (1,000 kg) |
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Tpd | Tonnes per day. |
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Trench | A long, narrow excavation dug through overburden, or blasted out of rock, to expose a vein or ore structure. |
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veins | The mineral deposits that are found filling openings in rocks created by faults or replacing rocks on either side of faults. |
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PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
A. | Selected Financial Date |
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B. | Capitalization and indebtedness |
Not Applicable.
C. | Reasons for the offer and use of proceeds |
Not Applicable.
D. | Risk factors |
An investment in our common shares involves a high degree of risk and should be considered speculative. You should carefully consider the following risks set out below and other information before investing in our common shares. If any event arising from these risks occurs, our business, prospects, financial condition, results of operations or cash flows could be adversely affected, the trading price of our common shares could decline and all or part of your investment may be lost.
Our operations are highly speculative due to the high-risk nature of our business, which include the acquisition, financing, exploration, development of mineral properties and operation of mines. The risks and uncertainties set out below are not the only ones we face. Additional risks and uncertainties not currently known to us or that we currently deem immaterial, may also impair our operations. If any of the risks actually occur, our business, financial condition and operating results could be adversely affected. As a result, the trading price of our common shares could decline, and investors could lose part or all of their investment. Our business is subject to significant risks and past performance is not a guarantee of future performance.
Our results of operations, cash flows and the value of our properties are highly dependent on the market prices of silver and gold and certain base metals and these prices can be volatile.
The profitability of our silver and gold mining operations and the value of our mining properties are directly related to the market price of silver, and to a lesser extent gold and other base metals. The price of silver may also have a significant influence on the market price of our common shares. The market price of silver historically has fluctuated significantly and is affected by numerous factors beyond our control. These factors include supply and demand fundamentals, global or national political or economic conditions, expectations with respect to the rate of inflation, the relative strength of the U.S. dollar and other currencies, interest rates, silver and gold sales and loans by central banks, forward sales by metal producers, accumulation and divestiture by exchange traded funds, and a number of other factors.
We derive a significant portion of our revenue from the sale of silver and our results of operations will fluctuate as the prices of this metals change. A period of significant and sustained lower silver prices would materially and adversely affect our results of operations and cash flows. During the past fiscal year, silver prices have decreased and, in the event, mineral prices decline or remain low for prolonged periods of time; we might be unable to develop our existing exploration properties, which may adversely affect our results of operations, financial performance, and cash flows. An asset impairment charge may result from the occurrence of unexpected adverse events that impact our estimates of expected cash flows generated from our producing properties or the market value of our non-producing properties, including a material diminution in the price of silver and/or gold.
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The Completion of the Proposed Acquisition of La Preciosa Property and Operations Thereof May Impose Additional Risks to the Company.
In October 2021, the Company entered into definitive agreements to acquire the La Preciosa Property, a development stage silver resource mineral property located adjacent to the Company’s existing operations at the Avino Property in Durango, Mexico. The completion of the acquisition of the La Preciosa Property raises potential additional risks to the Company including integrating the La Preciosa Property into the Company’s operations and the need to raise additional capital to develop, mine and operate the property.
We may be required to raise additional capital to mine our properties.
The Company is currently focusing on further defining plans to mine its Avino mineralized material, as well as further exploration of the Avino properties in Mexico. The Company may be required to raise capital to further advance the Avino Mine and its infrastructure, as well as to explore the Avino properties. Our ability to raise funds will depend on several factors, including, but not limited to, current economic conditions, our perceived value for our properties, our prospects, metal prices, businesses competing for financing and our financial condition. There can be no assurance that we will be able to raise funds, or to raise funds on commercially reasonable terms. Historically, the Company has raised funds through equity financing and the exercise of options and warrants. The raising of capital may have a dilutive effect on the Company’s per share book value.
We have experienced net operating losses.
We began extracting and processing resources at levels intended by management at the San Gonzalo Mine during the fourth quarter of 2012 (ceasing operations in 2019), and at the Avino Mine in the third quarter of 2015. For the year ended December 31, 2021, we incurred net loss from continuing operations of ($2,057,000). For the years ended December 31, 2020, and 2019, we earned net loss from continuing operations of ($7,482,000) and, ($2,335,000), respectively. Prior to the 2013 fiscal year, we had not been profitable. There is no assurance that our operations will be profitable in the future.
We have no proven or probable mineral reserves, and our decision to commence extracting and processing resources at levels intended by management was not based on a study demonstrating economic recovery of any mineral reserves and is therefore inherently risky.
We have not established the presence of any proven or probable mineral reserves at any of our properties. Any mineralized material discovered or produced by us should not be considered proven or probable reserves.
In order to demonstrate the existence of proven or probable reserves, it would be necessary for us to perform additional exploration to demonstrate the existence of sufficient mineralized material with satisfactory continuity and obtain a positive feasibility study which demonstrates with reasonable certainty that the deposit can be economically and legally extracted and produced. We have not completed a feasibility study with regard to all or a portion of any of our properties to date. Since we commenced extracting and processing resources of mineralized material at levels intended by management at the Avino Mine without a feasibility study, there is inherent uncertainty as to whether the mineralized material can be economically produced or if so, for what period of time. The absence of proven or probable reserves makes it more likely that our properties may cease to be profitable and that the money we spend on exploration and evaluation may never be recovered.
You may experience future dilution as a result of future equity offerings.
In order to raise additional capital, we may in the future offer additional shares of our common shares or other securities convertible into or exchangeable for our common shares at prices that may not be the same as the price per share paid by investors. We may sell shares or other securities in any other offering at a price per share that is less than the then current trading price, and investors purchasing shares or other securities in the future could have rights superior to existing stockholders. The price per share at which we sell additional shares of our common shares, or securities convertible or exchangeable into common shares, in future transactions may be higher or lower than the price per share paid by an investor.
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Impact of COVID-19 on mining operations.
Mexico has been particularly impacted by the COVID-19 pandemic. The Company’s mining operations were temporarily shut-down in April 2020 first as a result of governmental COVID-19 quarantine and containment measures, and later in July 2020 due to a labour strike, which was resolved in October 2020. The labour settlement agreement was approved by Mexican governmental labour authority. Although the Company takes appropriate measures and safeguards to protect its staff from infection, these events can result in volatility and disruption to supply chains, operations, transportation, and mobility of people, which are beyond the control of the Company, and which have had and could continue to adversely affect the availability of components, supplies and materials, labour, interest rates, credit ratings, credit risk, inflation, business operations, financial markets, exchange rates, and other factors material to the Company, including in particular, the Company’s revenues and concentrate delivery schedule.
In 2012 and 2015, we decided to begin extracting and processing resources at levels intended by management at the San Gonzalo Mine and the Avino Mine, respectively, without preparing a pre-feasibility study or bankable feasibility study which may subject us to more risks.
We decided to begin extracting and processing resources at levels intended by management at the San Gonzalo Mine (which ceased operations during 2019) and the Avino Mine without preparing a pre-feasibility study or bankable feasibility study which is a more common practice within the mining industry and therefore may subject us to more business risks. Our decision to begin extracting and processing resources at the San Gonzalo Mine and the Avino Mine were based on limited prior historical information, bulk sample drilling programs, small pilot plant and bench scale testing. Therefore, our decision to begin extracting and processing resources at the San Gonzalo Mine and the Avino Mine were based on limited information which may or may not be representative of information regarding the mines had we otherwise prepared a more comprehensive study. In addition, basing our decision to begin extracting and processing resources on limited information may make us susceptible to risks including:
| · | certain difficulties in obtaining expected metallurgical recoveries when scaling up to extracting and processing activities at levels intended by management from pilot plant scale; |
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| · | the inability to predict the amount of minerals within an area to be mine due the limited sample drilling programs which makes it a challenge to predict our revenues; |
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| · | the preliminary nature of mine plans and processing concepts and applying them to full scale extracting and processing activities at levels intended by management. |
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| · | determining operating/capital cost estimates and possible variances associated with constructing, commissioning and operating the Avino facilities based on limited information; |
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| · | that metallurgical flow sheets and recoveries are based on information at the time and may not be representative of results of the Avino Mine; and |
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| · | that we may underestimate capital and operating costs without a comprehensive bankable feasibility study. |
Company has a limited number of customers.
The Company produces concentrates containing silver and gold. The Company sells its concentrates to metals traders and smelters. During the year ended December 31, 2021, one customer accounted for more than 75% of revenues. The Company believes that a small number of customers will continue to represent a significant portion of its total revenue. However, the Company does not consider itself economically dependent upon any single customer or combination of customers due to the existence of other potential metals traders or smelters capable of purchasing the Company’s production. There is a risk that the Company could be subject to limited smelter availability and capacity, or it may not be able to maintain its current significant customers or secure significant new customers on similar terms, any of which may have a material adverse effect on the Company’s business, financial condition, operating results and cash flows.
Company may be subject to substantial decommissioning and reclamation costs.
The Company reviews and reassesses its reclamation obligations at each of its mines based on updated mine life estimates, rehabilitation and closure plans. As at December 31, 2021, the Company had a provision of approximately $0.726 million for future reclamation and remediation associated with the expected retirement of its mineral properties, plant, and equipment. The present value of these reclamation provisions may be subject to change as a result of management’s estimates of ultimate decommissioning and reclamation costs, changes in the remediation technology or changes to applicable laws, regulations and interest rates. Such changes will be recorded in the accounts of the Company as they occur.
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The costs of performing the decommissioning and reclamation must be funded by the Company’s operations. These costs can be significant and are subject to change. The Company cannot predict what level of decommissioning and reclamation may be required in the future by regulators. If the Company is required to comply with significant additional regulations or if the actual cost of future decommissioning and reclamation is significantly higher than current estimates, this could have an adverse impact on the Company’s future cash flows, earnings, results of operations and financial condition.
Company’s operations are subject to political risk and government regulations
The Company’s mining, exploration and development activities are focused in Mexico and Canada, and are subject to national and local laws and regulations, governing prospects, taxes, labour standards, occupational health, land use, environmental protection, mine safety and others which currently or in the future may have a substantial adverse impact on the Company. In order to comply with applicable laws, the Company may be required to incur significant capital or operating expenditures. Existing and possible future environmental legislation, regulation and action could cause additional expense, capital expenditures, restriction, and delays in the activities of the Company, the extent of which cannot be reasonably predicted. Violations may require compensation of those suffering loss or damage by reason of the Company’s mining activities, and the Company may be fined if convicted of an offence under such legislation.
Mining and exploration activities in Mexico and/or Canada may be affected in varying degrees by political instabilities and government regulations relating to the mining industry. Any changes in regulations or shifts in political conditions are beyond the Company’s control and may adversely affect the business. Operations may also be affected to varying degrees by government regulations with respect to restrictions on production, price controls, export controls, income taxes, expropriation of property, environmental legislation and mine safety. The status of Mexico as a developing country may make it more difficult for the Company to obtain any required financing for projects. The effect of all these factors cannot be accurately predicted. Notwithstanding the progress achieved in improving Mexican political institutions and revitalizing its economy, the present administration, or any successor government, may not be able to sustain the progress achieved. The Company does not carry political risk insurance.
Under the Foreign Investment Law of Mexico, there is no limitation on foreign capital participation in mining operations; however, the applicable laws may change in a way which may adversely impact the Company and its ability to repatriate profits. Under Mexican Income Tax Law, dividends are subject to a withholding tax. Corporations with their tax residence in Mexico are taxed on their worldwide income. Mexico levies a value-added tax, known as the IVA, which is an indirect tax levied on the value added to goods and services, and it is imposed on corporations that carry out activities within Mexican territory.
During 2013, the Mexico Senate passed tax reform legislation, which took effect on January 1, 2014. The tax reform includes an increase in the corporate tax rate from 28% to 30%, the introduction of a special mining royalty of 7.5% on the profits derived from the sale of minerals, and the introduction of a mining royalty of 0.5% on the gross income derived from the sale of gold, silver and platinum. These changes may have a material impact on the Company’s future earnings and cash flows, and possibly on future capital investment decisions.
Exploration and development risks.
The business of exploration and development for minerals involves a high degree of risk and few properties become producing mines. Unprofitable efforts result not only from the failure to discover mineral deposits, but from finding mineral deposits which, though present, are insufficient in quantity and quality to return a profit from production. There is no assurance that the Company’s future exploration and development activities will result in any discoveries of commercial bodies of ore. The marketability of minerals acquired or discovered by the Company may be affected by numerous factors which are beyond the control of the Company and which cannot be accurately predicted, such as market fluctuations, the proximity and capacity of mining facilities, mineral markets and processing equipment, and such other factors as government regulations, including regulations relating to royalties, allowable production, importing and exporting of minerals, and environmental protection, the combination of which factors may result in the Company not receiving an adequate return on invested capital.
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The mining industry is highly speculative and involves substantial risks.
Even when mining is conducted on properties known to contain significant quantities of mineral deposits it is generally accepted in the mining industry that most exploration projects do not result in the discovery of mineable deposits of ore that can be extracted in a commercially economic manner. There may be limited availability of water, which is essential to milling operations, and interruptions may be caused by adverse weather conditions. Operations are subject to a variety of existing laws and regulations relating to exploration and development, permitting procedures, safety precautions, property reclamation, employee health and safety, air quality standards, pollution and other environmental protection controls. Mining activities are subject to substantial operating hazards, some of which are not insurable or may not be insured for economic reasons.
The commercial quantities of ore cannot be accurately predicted.
Whether an ore body will be commercially viable depends on a number of factors including the particular attributes of the deposit, such as size, grade and proximity to infrastructure, as well as minerals prices and government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in a mineral deposit being unprofitable.
There are no assurances that we can produce minerals on a commercially viable basis.
The Company’s ability to generate revenue and profit is expected to occur through exploration, evaluation, advancement and operation of its existing properties as well as through acquisitions of interests in new properties. Substantial expenditures will be incurred in an attempt to establish the economic feasibility of mining activities by identifying mineral deposits and establishing ore reserves through drilling and other techniques, developing metallurgical processes to extract metals from ore, designing facilities and planning mining activities. The economic feasibility of a project depends on numerous factors, including the cost of mining and production facilities required to extract the desired minerals, the total mineral deposits that can be mined using a given facility, the proximity of the mineral deposits to refining facilities, and the market price of the minerals at the time of sale. There is no assurance that existing or future exploration programs or acquisitions will result in the identification of deposits that can be mined profitably.
Mining activities and exploration activities are subject to various federal, state, provincial and local laws and regulations.
Laws and regulations govern the development, mining, production, importing and exporting of minerals, taxes, labour standards, occupational health, waste disposal, protection of the environment, mine safety, toxic substances, and other matters. In many cases, licenses and permits are required to conduct mining operations. Amendments to current laws and regulations governing operations and activities of mining companies or more stringent implementation thereof could have a substantial adverse impact on the Company. Applicable laws and regulations will require the Company to make certain capital and operating expenditures to initiate new activity. Under certain circumstances, the Company may be required to suspend an activity once it is started until a particular problem is remedied or to undertake other remedial actions.
Mining activities are inherently risky and subject to accidents.
Mining activities are risky and heavily regulated. Despite our attempts to minimize accidents through strict safety procedures, individuals may be injured or harmed working in our mines. Should any accidents occur, our mine may be partially or fully shut down to aid regulators in their investigation, even if it is determined we are not at fault for the cause of the accident. In this regard, there were two accidental deaths at the Company’s San Gonzalo mine in March 2016, and an accidental death at the Avino Mine complex processing facility in June 2014. We do not believe that we were at fault in these accidents and, unfortunately, believe that the accidents were the result of the employees not following the proper safety protocols. Following the accidents, local authorities allowed us to resume mining activities. Notwithstanding our belief that we were not at fault for the accidents, we may nevertheless be found liable and subject to fines and/or penalties or we may be required to revise and implement new safety procedures that would make it more costly to operate our mines. Currently, we do not have insurance covering accidents, but may obtain insurance in the future.
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Our concentrates are subject to theft and loss.
The concentrates produced by the Company have significant value, and are loaded onto road vehicles for transport to smelters in Mexico or to seaports for export to smelters in foreign markets, such as Europe and Asia, where the metals are extracted. The geographic location of the Company’s operating mines in Mexico and trucking routes taken through the country to the smelters and ports for delivery, give rise to risks including concentrate theft, road blocks and terrorist attacks, losses caused by adverse weather conditions, delays in delivery of shipments, and environmental liabilities in the event of an accident or spill. In addition, the Company may have significant concentrate inventories at its facilities or on consignment at other warehouses awaiting shipment. The Company has taken steps to secure its concentrate, whether in storage or in transit. The Company has insurance coverage for its inventory while in transit; however, recovery of the full market value may not always be possible. Despite these risk mitigation measures, there remains a continued risk that theft of concentrate may have a material impact on the Company’s financial results.
Our mining operations are subject to number of risks including uninsured risks which may result in suspension of operations.
Mining operations generally involve a high degree of risk which even a combination of experience, knowledge and careful evaluation may not be able to overcome. The business of mining and exploration is subject to a variety of risks including, but not limited to, fires, power outages, labour disruptions, industrial accidents, flooding, explosions, cave-ins, landslides, environmental hazards, technical failures, and the inability to obtain suitable or adequate machinery, equipment or labour. Such occurrences, against which the Company cannot, or may elect not to insure, may delay production, increase production costs or result in liabilities. The payment of such liabilities may have a material adverse effect on the Company’s financial position. The economics of developing mineral properties are affected by such factors as the cost of operations, variations in the grade and metallurgy of the ore mined, fluctuations in mineral markets, costs of processing and equipment, transportation costs, government regulations including regulations relating to royalties, allowable production, importing and exporting of mineral product, and environmental protection rules and regulations.
During the period between the end of April to June 2020, the Company was required to shut down operations at the Avino Mine due to COVID-19 pandemic safety measures imposed by the Mexican authorities. In June 2020, mining operations briefly resumed, until a labour strike in July 2020 resulting in a suspension of operations. The labour strike was resolved in October 2020.
The exercise of our outstanding warrants, stock options into common shares and issuance of RSUs will result in ownership dilution to our shareholders and could temporarily suppress the price of our common shares.
As at December 31, 2021, we had outstanding warrants to purchase 1,950,412 common shares at a weighted average exercise price of $0.80 per share. As at December 31, 2021, there were outstanding share options exercisable into 2,839,000 common shares at a weighted average exercise price of Cdn$1.68 and RSUs outstanding for the issuance of a further 1,439,477 common shares at a weighted average exercise price of Cdn$1.32. If all these options and warrants are exercised and RSUs are issued, such issuance will cause ownership dilution to our shareholders. The dilution may result in a decline in the market price of our common shares.
Market forces may adversely affect the marketability of mineral resources.
There is no assurance that, even if commercial quantities of mineral resources are discovered, that these can be sold at a profit. Factors beyond the control of the Company may affect the marketability of any mineral occurrences discovered. The prices of silver, gold and copper have experienced volatile and significant movements over short periods of time, and are affected by numerous factors beyond the control of the Company, including international economic and political trends, expectations of inflation, currency exchange fluctuations (specifically, the United States dollar relative to the Canadian dollar and other currencies), interest rates and global or regional consumption patterns (such as the development of gold coin programs), speculative activities and increased production due to improved mining and production methods.
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The Company is subject to foreign corrupt practices laws.
The Company is subject to the Foreign Corrupt Practices Act (the “FCPA”), the Corruption of Foreign Public Officials Act (Canada) (“CFPOA”), and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by persons and issuers as defined by the statutes, for the purpose of obtaining or retaining business. It is our policy to implement safeguards to discourage these practices by our employees; however, our existing safeguards and any future improvements may prove to be ineffective, and our employees, consultants, sales agents or distributors may engage in conduct for which the Company might be held responsible. Violations of the FCPA, CFPOA, and/or other laws may result in criminal or civil sanctions and the Company may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. The Company is also subject to the Extractive Sector Transparency Measures Act (Canada) (“ESTMA”), which requires us to maintain records of specific payments (including taxes, royalties, fees, production entitlements, bonuses, dividends, and infrastructure improvements) to all government entities in Canada and abroad, and to publicly disclose payments of $100,000 or more in any payment category on an annual basis within 150 days of our fiscal year end, to increase transparency and deter corruption in the extractive industry sector.
The validity of the title to our mining properties may be challenged.
In those jurisdictions where the Company has property interests, the Company undertakes searches of mining records and obtains title opinions from reputable counsel in accordance with mining industry practices to confirm satisfactory title to properties in which it holds or intends to acquire an interest, but the Company does not obtain title insurance with respect to such properties. The possibility exists that title to one or more of its properties, particularly title to undeveloped properties, might be defective because of errors or omissions in the chain of title, including defects in conveyances and defects in locating or maintaining such claims, prior unregistered agreements or transfers, and title may be affected by undetected defects or native land claims. For unsurveyed mineral claims, the location and boundaries of such mining claims may be in doubt. The ownership and validity of mining claims are often uncertain and may be contested. The Company is not aware of any challenges to the location or area of its mineral claims. There is, however, no guarantee that title to the Company’s properties will not be challenged or impugned in the future. The properties may be subject to prior unregistered agreements or transfers.
In Mexico and British Columbia legal rights applicable to mining concessions or mineral claims, as applicable, are different and separate from legal rights applicable to surface lands; accordingly, title holders of mining concessions or mineral claims must accommodate and agree with surface land-owners on compensation in respect of mining activities conducted on such land.
We do not intend to pay dividends in the foreseeable future.
We have never paid, and we do not intend to pay, any cash dividends in the foreseeable future.
Certain provisions of organizational documents may discourage takeovers and business combinations that our shareholders may consider in their best interests, which could negatively affect our stock price.
Certain provisions of our Articles of Incorporation (“Articles”) may have the effect of delaying or preventing a change in control of our Company or deterring tender offers for our common shares that other shareholders may consider in their best interests.
Our Articles authorize us to issue an unlimited number of common shares. Shareholder approval is not necessary to issue our common shares. Issuance of these common shares could have the effect of making it more difficult and more expensive for a person or group to acquire control of us and could effectively be used as an anti-takeover device.
Our Articles provide for an advance notice procedure for shareholders to nominate director candidates for election or to bring business before an annual meeting of shareholders, including proposed nominations of persons for election to our board of directors, and require that special meetings of shareholders be called by the board or shareholders who hold at least 5% of the total issued and outstanding shares.
Our business is subject to competition.
There is a limited supply of desirable mineral lands available for acquisition, claim staking or leasing in the areas where the Company contemplates expanding its operations and conducting exploration activities. Many participants are engaged in the mining business, including large, established mining companies. There can be no assurance that the Company will be able to compete successfully for new mining properties. The resource industry is intensely competitive in all its phases, and the Company competes with many companies possessing greater financial resources and technical facilities than itself. Competition could adversely affect the Company’s ability to acquire suitable producing properties or prospects exploration in the future.
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Uncertainty of exploration and evaluation programs.
The Company’s profitability is significantly affected by the costs and results of its exploration and evaluation programs. As mines have limited lives, the Company actively seeks to expand its mineral resources, primarily through exploration, evaluation and strategic acquisitions. Exploration for minerals is highly speculative in nature, involves many risks and is frequently unsuccessful. Among the many uncertainties inherent in any silver, gold, and/or copper exploration and evaluation program are the location of economic ore bodies, the development of appropriate metallurgical processes, the receipt of necessary governmental permits and the construction of mining and processing facilities. Assuming the discovery of an economic deposit, depending on the type of mining operation involved, several years may elapse from the initial phases of drilling until commercial operations are commenced and, during such time, the economic feasibility of extracting and processing resources may change. Accordingly, the Company’s exploration and evaluation programs may not result in any new economically viable mining operations or yield new mineral resources to expand current mineral resources.
If the Company fails to obtain or maintain the necessary permits, this may adversely affect the Company’s financial condition and business.
Existing and possible future environmental legislation, regulations and actions could give rise to additional expense, capital expenditures, restrictions and delays in the activities of the Company, the extent of which cannot be predicted. Regulatory requirements and environmental standards are subject to constant evaluation and may become more restrictive, which could materially affect the business of the Company or its ability to develop its properties. Before production can commence on any of its mineral properties, the Company must obtain regulatory and environmental approvals. There is no assurance that such approvals will be obtained, or if they are obtained, if they will be granted on a timely basis. The cost of compliance with existing and future governmental regulations has the potential to reduce the profitability of operations or preclude entirely the economic development of the Company’s mineral projects and properties.
Permitting of exploration programs in Mexico requires the completion of agreements with the indigenous communities in the vicinity of the project. The timing for the completion of such agreements is unpredictable. The process of obtaining such agreements is also affected by the two-year election cycle for the councils of the indigenous communities.
Political or economic instability or unexpected regulatory change may adversely affect the Company.
The Company is subject to a number of factors beyond its control. Our primary property is located in a foreign country that may be subject to political and economic instability, or unexpected legislative change than is usually the case in certain other countries, provinces and states. Our mineral exploration and mining activities could be adversely affected by:
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| · | unenforceability of contractual rights, any of which may adversely affect our business in that country. |
We may be adversely affected by fluctuations in foreign exchange rates.
We maintain our bank accounts in Canadian and U.S. Dollars and Mexican pesos. Any appreciation in the currency of Mexico or other countries where we may carry out exploration and mining activities against the Canadian or U.S. Dollar will increase our costs of carrying out operations in such countries. In addition, any increase in the Canadian Dollar against the U.S. Dollar will result in a loss on our financial statements to the extent we hold funds in Canadian Dollars. Copper, gold and silver are typically sold in U.S. dollars. As a result, the Company is subject to foreign exchange risks relating to the relative value of the U.S. dollar as compared to the Canadian dollar and the Mexican peso. To the extent that the Company generates revenues at the Avino Mine, it will be subject to foreign exchange risks as revenues will be received in U.S. dollars while certain operating and capital costs will be incurred primarily in Mexican pesos. A decline in the U.S. dollar would result in a decrease in the Company’s revenues and adversely impact the Company’s financial performance.
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We may be subject to land reclamation requirements.
Although variable, depending on location and the governing authority, land reclamation requirements are generally imposed on mineral exploration and mining companies, in order to minimize the long-term effects of land disturbance. Reclamation may include requirements to control dispersion of potentially deleterious effluents and reasonably re-establish pre-disturbance land forms and vegetation. In order to carry out reclamation obligations imposed on us in connection with our mineral exploration and mining activities we must allocate financial resources that might otherwise be spent on further exploration or acquisition programs.
Acquisitions the Company may undertake may change our business or expose us to risks.
The Company undertakes evaluations of opportunities to acquire additional silver and gold mining properties. Any resultant acquisitions may be significant in size, may change the scale of the Company’s business, and may expose the Company to new geographic, political, operating, financial and geological risks. The Company’s success in its acquisition activities depends on its ability to identify suitable acquisition candidates, acquire them on acceptable terms, and integrate their operations successfully. Any acquisitions would be accompanied by risks, such as a significant decline in the price of silver or gold, the mineralized material proving to be below expectations, the difficulty of assimilating the operations and personnel of any acquired companies, the potential disruption of the Company’s ongoing business, the inability of management to maximize the financial and strategic position of the Company through the successful integration of acquired assets and businesses, the maintenance of uniform standards, controls, procedures and policies, the impairment of relationships with customers and contractors as a result of any integration of new management personnel and the potential unknown liabilities associated with acquired mining properties. There can be no assurance that the Company would be successful in overcoming these risks or any other problems encountered in connection with such acquisitions.
Current global financial conditions may adversely affect the Company’s ability to secure financing.
Financial markets globally have been subject to increased volatility. Access to financing has been negatively affected by liquidity crises and uncertainty with respect to sovereign defaults throughout the world. These factors may impact the ability of the Company to obtain loans and other forms of financing in the future and, if obtained, on terms favourable to the Company. If these levels of volatility and market turmoil continue or worsen, the Company may not be able to secure appropriate debt or equity financing when needed, any of which could affect the trading price of the Company’s securities in an adverse manner.
There may be potential conflicts of interest between the Company and our directors, officers, affiliates and promoters.
There are potential conflicts of interest to which the directors, officers, insiders and promoters of the Company will be subject in connection with the operations of the Company. The directors, officers, insiders and promoters of the Company are engaged in and will continue to be engaged in corporations or businesses which may be in competition with the Company. Accordingly, situations may arise where such directors, officers, insiders and promoters will be in direct competition with the Company. The Company has a process to identify and declare any conflicts. Conflicts, if any, will be subject to the procedures and remedies as provided under the Business Corporations Act of British Columbia.
We are dependent on our management.
We are dependent on the services of key executives including our President and Chief Executive Officer and other highly skilled and experienced executives and personnel focused on advancing our corporate objectives as well as the identification of new opportunities for growth and funding. Due to our relatively small size, the loss of these persons or our inability to attract and retain additional highly skilled employees required for our activities may have a material adverse effect on our business and financial condition.
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We are subject to competition for recruitment and retention of qualified personnel.
We compete with other exploration and mining companies, many of which have greater financial resources than us or are further in their advancement, for the recruitment and retention of qualified employees and other personnel. Competition for exploration and mining resources at all levels is highly cyclical and can quickly become very intense, particularly affecting the availability of manpower, drill rigs and supplies. Recruiting and retaining qualified personnel in the future is critical to the Company’s success. As the Company explores its Avino Mine and other properties, the need for skilled labour will increase. The number of persons skilled in the exploration of mining properties is limited and competition for this workforce is intense. The exploration and other initiatives of the Company may be significantly delayed or otherwise adversely affected if the Company cannot recruit and retain qualified personnel and/or obtain other exploration and mining resources as and when required.
Our common shares are subject to limited and volatile trading volume.
Although the Company’s common shares are listed on the NYSE American, the TSX, the Frankfurt Stock Exchange, referred to herein as the “FSE”, and the Berlin Stock Exchange, the volume of trading has been limited and volatile in the past and may likely to continue to be so in the future, reducing the liquidity of an investment in the Company’s common shares and making it difficult for investors to readily sell their common shares in the open market. Without a liquid market for the Company’s common shares, investors may be unable to sell their shares at favorable times and prices and may be required to hold their shares in declining markets or to sell them at unfavorable prices.
Our common shares are subject to volatile share price.
In recent years, securities markets in general have experienced a high level of price volatility. The market price of many resource companies, particularly those, like the Company, that are considered speculative exploration and mining companies, have experienced wide fluctuations in price, resulting in substantial losses to investors who have sold their shares at a low price point. These fluctuations are based only in part on the level of progress of exploration, and can reflect general economic and market trends, world events or investor sentiment, and may sometimes bear no apparent relation to any objective factors or criteria. Significant fluctuation in the Company’s common share price is likely to continue.
Difficulty for United States investors to effect services of process against the Company.
The Company is incorporated under the laws of the Province of British Columbia, Canada. Consequently, it will be difficult for United States investors to affect service of process in the United States upon the directors or officers of the Company, or to realize in the United States upon judgments of United States courts predicated upon civil liabilities under the Exchange Act. The majority of the Company’s directors and officers are residents of Canada and all of the Company’s material assets are located outside of the United States. A judgment of a United States court predicated solely upon such civil liabilities would probably be enforceable in Canada by a Canadian court if the United States court in which the judgment was obtained had jurisdiction, as determined by the Canadian court, in the matter. There is substantial doubt whether an original action could be brought successfully in Canada against any of such persons or the Company predicated solely upon such civil liabilities.
Disruptions to our information technology systems, including future cyber-attacks and security breaches, and the costs of maintaining secure and effective information technology systems could negatively affect our business and results of operations.
The efficient operation of our businesses is dependent on computer hardware and software systems. Information systems are vulnerable to security breaches by computer hackers and cyber terrorists. We rely on industry accepted security measures and technology to securely maintain confidential and proprietary information maintained on our information systems and continue to invest in maintaining and upgrading these systems and applications to ensure risk is controlled. Regardless of our efforts to maintain and upgrade our cyber security systems, there can be no assurance that we will not suffer an intrusion, that unauthorized parties will not gain access to confidential or personal information, or that any such incident will be discovered promptly. The techniques used by criminals to obtain unauthorized access to sensitive data change frequently and often are not recognized until launched against a target, and we may be unable to anticipate these techniques or implement adequate preventative measures. The failure to promptly detect, determine the extent of and appropriately respond to a significant data security breach could have a material adverse impact on our business, financial condition and results of operations. In addition, the unavailability of the information systems or failure of these systems to perform as anticipated for any reason, including a major disaster or business interruption resulting in an inability to access data stored in these systems or sustain the data center systems necessary to support functions to meet our needs, and any inability to respond to, or recover from, such an event, could disrupt our business and could result in decreased performance and increased overhead costs, causing our business and results of operations to suffer.
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We are a multinational company that faces complex taxation regimes in various jurisdictions. Audits, investigations, and tax proceedings could have a material adverse effect on our business, results of operations, and financial condition.
We are subject to income and non-income taxes in numerous jurisdictions. Income tax accounting often involves complex issues, and judgment is required in determining our worldwide provision for income taxes and other tax liabilities. In particular, most of the jurisdictions in which we conduct business have detailed transfer pricing rules, which require that all transactions with non-resident related parties be priced using arm’s length pricing principles within the meaning of such rules. In addition, the application of withholding tax, value added tax, goods and services tax, sales taxes and other non-income taxes is not always clear and we may be subject to tax audits relating to such withholding or non-income taxes. We believe that our tax positions are reasonable and our tax reserves are adequate to cover any potential liability. However, tax authorities in certain jurisdictions may disagree with our position, including the propriety of our related party arm’s length transfer pricing policies and the tax treatment of corresponding expenses and income. If any of these tax authorities were successful in challenging our positions, we may be liable for additional income tax and penalties and interest related thereto in excess of any reserves established therefor, which may have a significant impact on our results and operations and future cash flow.
Changes to tax laws in any of the jurisdictions in which we operate or plan to operate in the future could have a material adverse effect on our business, results of operations, and financial condition.
We are a multinational company that is subject to complex taxation regimes in numerous jurisdictions. Our future effective tax rates could be affected by changes in tax laws or their interpretation in any of those jurisdictions. Tax laws, including tax rates, in the jurisdictions in which we operate may change as a result of macroeconomic or other factors outside of our control. Changes in tax laws, treaties, or regulations or their interpretation or enforcement are unpredictable. Any of these occurrences could have a material adverse effect on our results of operations and financial condition.
Item 4. Information on the Company
Preliminary Note. References to the “Technical Report” refers to the “Resource Estimate Update For the Avino Property, Durango, Mexico”, dated January 13, 2021, as amended in the “Amended Resource Estimate Update For the Avino Property, Durango, Mexico” in the NI 43-101 Technical Report prepared by Tetra Tech Inc. and Red Pennant Communications Corp. and is intended to comply with the requirements of subpart 1300 of Regulation S-K (the “SEC Mining Modernization Rules”) and Canadian National Instrument 43-101— Standards of Disclosure for Mineral Projects (“NI 43-101”). The mineral resource estimate contained in the Technical Report for the Avino Property was filed as an exhibit to Form F-3 January 27, 2021, as amended on Form 6-K on December 21, 2021, and was filed on Sedar on January 15, 2021, as amended on December 21, 2021. The mineral resource estimates contained in the Technical Report for the Avino Property, as amended, is effective as of the date of January 13, 2021, and has not been updated since that time. The Company believes that activity at the Avino Property subsequent to the effective date of the mineral resource estimates would not result in a material change to the information contained in the Technical Report. The Company has no proven or probable mineral reserves. Hassan Ghaffari, P.Eng., M.A.Sc., Jianhui (John) Huang, Ph.D., P.Eng and Michael F. O’Brien, P.Geo., M.Sc., Pr.Sci.Nat., FAusIMM are the Qualified Persons who prepared the Technical Report. None of Messrs. Ghaffari, Huang nor O’Brien, or their respect companies, Tetra Tech Canada Inc. and Red Pennant Communications Corp., was an affiliate of or had an interest in the Company or had an interest in the Avino Property at the time of the Technical Report. A copy of the Technical Report is referenced as Exhibit 96.1
A. History and development of the Company
The Company was incorporated by Memorandum of Association under the laws of the Province of British Columbia on May 15, 1968, and on August 22, 1969, by virtue of an amalgamation with Ace Mining Company Ltd., became a public company whose common shares are registered under the Exchange Act, changing its name to Avino Mines Resources Limited. On April 12, 1995, the Company changed its corporate name to International Avino Mines Ltd. and effected a reverse stock split of one common share for every five common shares outstanding. On August 29, 1997, the Company changed its corporate name to Avino Silver Gold Mines Ltd., its current name, to better reflect the business of the Company of exploring for and mining silver and gold
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The Company is a reporting issuer in all Provinces of Canada, except for Quebec, a foreign private issuer in the United States, and is listed on the Toronto Stock Exchange, under the symbol “ASM”, on the NYSE-American under the symbol “ASM”, and on the Berlin and Frankfurt Stock Exchanges under the symbol “GV6”. The principal executive office of the Company is located at Suite 900, 570 Granville Street, Vancouver, British Columbia V6C 3P1, and its telephone number is 604-682-3701.
The Company is a natural resource company primarily engaged in the extracting and processing of silver and to a lesser extent, gold and copper and the acquisition and exploration of natural resource properties. The Company’s principal business activities have been the exploration for and extracting and processing of silver, gold and copper at mineral properties located in the State of Durango, Mexico. The Company also owns other exploration and evaluation assets in British Columbia and the Yukon, Canada.
B. Business overview
Operations and Principal Activities
The Company is a Canadian-based resource firm focused on silver, gold, and copper exploration, extraction and processing. The Company has a long prior history of operation, beginning in 1968 with the development of the Avino Silver Mine, located in the state of Durango, Mexico (the “Avino Mine”). From 1974 to 2001, the Avino Mine produced silver, gold, copper and lead and provided hundreds of jobs for the Durango region before closing due to depressed metal prices and closing of a smelter. Beginning in 2002, the Company re-directed its corporate strategy to focus almost entirely on silver, and the Company began acquiring silver properties in North America.. In October 2014, Avino acquired Bralorne Gold Mines Ltd. (“Bralorne”), a British Columbia company, which owns the past producing Bralorne Gold Mine in British Columbia, as a wholly-owned subsidiary. The Avino Mine in Mexico, the Bralorne Mine in British Columbia, and surrounding mineral leases continue to hold silver and gold potential. On December 13, 2019, the Company completed the sale of Bralorne to Talisker. The sale includes the Bralorne Gold Mine and is part of the Company’s plan to focus on its core mining operations in Mexico. For more information regarding the sale, please see below. The Company also had an option agreement with Alexco Resources Corp. on its wholly-owned Eagle Property located in the Yukon. This option agreement was terminated on January 31, 2019. The Avino Property, along with other silver and gold projects, will remain the Company’s principal focus for the foreseeable future. The Eagle Property is currently inactive.
In the second quarter of 2016, the Company declared that effective April 1, 2016, extracting and processing resources at levels intended by management had been achieved at the Avino Mine following an advancement and test period of 19 months. The decision was based on the following criteria:
| · | All critical capital components have been acquired and installed to achieve desired mining and processing results; |
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| · | The mill has consistently processed at levels above design capacity and budgeted production levels of 1,250 tpd with consistent recoveries and grades; and |
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| · | The Company entered into a long-term sales agreement with Samsung CT U.K. Limited (“Samsung”). Further, Samsung has provided Avino with a term facility which has provided capital to facilitate further expansion and development of the Avino Mine. |
Subsequently, on July 11, 2018, upon further review of the Company’s experience at the Avino and San Gonzalo mines, the Company concluded to change its accounting policy under IFRS 6 and IAS 16 in accounting for the Company’s Exploration and Evaluation Assets and Development Costs, including the determination that the Company commenced production effective July 1, 2015. The voluntary change in accounting policy was intended to provide investors with a better reflection of the Company’s business activities to enhance the comparability of the Company’s financial statements to the Company’s peers and to make the Company’s financial statements more relevant to the economic decision-making needs of users.
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| Table of Contents |
As a result of applying the change in accounting policy, we have determined that we would have been deemed to be in the production phase effective July 1, 2015. Accordingly, we have applied this retrospective application of this change in accounting policy for (i) the year ended December 31, 2015; (ii) the year ended December 31, 2016; and (iii) the year ended December 31, 2017.
On December 13, 2019, Avino closed an agreement to sell all of the issued and outstanding shares of Bralorne to Talisker for:
| (i) | A cash consideration of C$8.7 million; |
|
|
|
| (ii) | The issuance of 12,580,000 common shares of Talisker (the “Talisker Shares”); |
|
|
|
| (iii) | The issuance of 6,290,000 share purchase warrants (the “Talisker Warrants”) exercisable at C$0.25 per share for a period of three years after the Closing Date |
In addition, as part of the sale of Bralorne to Talisker, Avino also assigned all of its rights and obligations to the nine BRX mineral claims to Talisker. As a result of the sale, Avino acquired the Talisker Shares, representing 9.9% of the total issued and outstanding shares of Talisker, and the Talisker Shares and Talisker Warrants represent 14.85% of Talisker on a fully diluted basis assuming the exercise of the Talisker Warrants. The Talisker Shares and Talisker Warrants were acquired by Avino for investment purposes.
On February 25, 2020, the Company exercised its Talisker Warrant to purchase 6,290,000 common shares. On that same date, the Company sold 3,000,000 common shares of Talisker. As a result of these transactions, the Company, as of February 25, 2020, held 15,870,000 common shares of Talisker representing approximately 9.6% of Talisker common shares.
Avino’s remaining Mexican properties other than San Gonzalo and Avino, as well as its Canadian properties, are all in the exploration stage. In order to determine if a commercially viable mineral deposit exists in any of these properties, further geological work will need to be done, and based upon the results of that work a final evaluation will need to be made to conclude on economic and legal feasibility. The Company is currently focusing on extracting and processing resources at the Avino Mine. The Company’s three other Canadian properties are not deemed to be material and are subject to care and maintenance for further exploration and evaluation, if any.
On October 27, 2021, the Company announced that it has entered into a share purchase agreement (the “La Preciosa Transaction”) with Coeur Mining Inc. (“Coeur”) to acquire through the purchase of shares of certain holding companies, the La Preciosa property (“La Preciosa”). The property is located adjacent to the Avino Mine in the state of Durango, Mexico.
Consideration of $20,000,000, of which $15,000,000 is payable at the closing of the La Preciosa Transaction and the remaining $5,000,000 is payable before the first anniversary of the closing date.
Avino will issue 14,000,000 units (the “Units”) comprised of one common share and one half of a common share purchase warrants.
Cash consideration of US$8.75 million will be payable by the Company to Coeur within 12 months of initial production at La Preciosa. Avino may elect to pay up to half of the contingent cash consideration in Avino shares. Coeur will retain ownership of a 1.25% net smelter royalty on the Gloria and Abundancia areas of La Preciosa, and a 2.00% gross value royalty on all areas of La Preciosa other than the Gloria and Abundancia areas.
So long as Coeur holds 10% or more of the outstanding shares of Avino, Coeur has the option to nominate one director for election to the Avino board or designate a board observer. At closing, Coeur has also been granted pre-emptive rights to maintain its equity ownership position in Avino and has entered into a voting agreement with Avino.
The completion of the proposed La Preciosa Transaction is subject to a number of customary conditions precedent, as well as, the authorization of the Mexican Federal Economic Commission,. The Toronto Stock Exchange has provided conditional approval of the project and the NYSE American has approved the listing of the common shares and warrants to be issued in the La Preciosa Transaction. The La Preciosa Transaction closed on March 21, 2022.
| 20 |
| Table of Contents |
Competition
The mining industry in which the Company is engaged is highly competitive. Competitors include well-capitalized mining companies, independent mining companies and other companies having financial and other resources far greater than those of the Company. The Company competes with other mining companies in connection with the acquisition of gold, silver and other base metal properties. In general, properties with a higher grade of recoverable minerals and/or which are more readily mined afford the owners a competitive advantage in that the cost of production of the final mineral product is lower.
Seasonality
Certain of our exploration properties are located in British Columbia and the Yukon. The weather during the colder seasons in these areas can be extreme and can cause interruptions or delays in our operations. As a result, the preferable time for activities in these regions is spring and summer when costs are more reasonable and access to the properties is easier. In the summer months, however, if the weather has been unusually hot and dry, access to the Company’s properties may be limited as a result of access restrictions being imposed to monitor the risks of forest fires.
Governmental Regulation
The current and anticipated future operations of the Company, including exploration and evaluation activities and extracting and processing resources on its properties, require permits from various federal, territorial and local governmental authorities and such operations are and will be governed by laws and regulations governing prospecting, development, mining, production, exports, taxes, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters. Companies engaged in the development and operation of mines and related facilities generally experience increased costs and delays in production and other schedules as a result of the need to comply with applicable laws, regulations and permits. Such operations and exploration activities are also subject to substantial regulation under these laws by governmental agencies and may require that the Company obtain permits from various governmental agencies. The Company believes it is in substantial compliance with all material laws and regulations which currently apply to its activities. There can be no assurance, however, that all permits which the Company may require for construction of mining facilities and conduct of mining activities will be obtainable on reasonable terms or that such laws and regulations, or that new legislation or modifications to existing legislation, would not have an adverse effect on any exploration or mining project which the Company might undertake.
The Company believes it has obtained all necessary permits and authorizations required for its current exploration and mining activities. The Company has had no material costs related to compliance and/or permits in recent years, and it anticipates incurring necessary expenditures to maintain compliance in the future. Unfavorable amendments to current laws, regulations and permits governing operations and activities of resource exploration companies, or more stringent implementation thereof, could have a materially adverse impact on the Company and cause increases in capital expenditures which could result in a cessation of operations by the Company.
Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment or remedial actions. Parties engaged in exploration and mining activities may be required to compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal fines or penalties imposed for violation of applicable laws or regulations.
The enactment of new laws or amendments to current laws, regulations and permits governing operations and activities of mining companies, or more stringent implementation thereof, could have a material adverse impact on the Company and cause increases in capital expenditures or costs of extracting and processing resources or reductions in levels of extracting and processing resources at its mining properties or require abandonment or delays in the exploration and evaluation of new mining properties.
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| Table of Contents |
Governmental Regulation - Mexico
Mineral exploration and mining in Mexico is covered under the Mining Law as first published in June 1992, and most recently amended in August 2014. Mining activities in Mexico are administered by the Ministry of Economy. Environmental regulations are covered under “Ley General del Equilibrio Ecológio y la Protección al Ambiente” (General Law of Ecological Balance and Environmental Protection) and its regulations. Certain other environmental laws, including “Ley de Aguas Nacionales” (Law of National Waters) and “Ley Forestal” (Forestry Law) and their associated regulations may also cover certain operations. The kind of permits or authorizations required to conduct mining or mineral exploration operations in Mexico depend upon the type of operation. Common exploration activities do not require prior environmental authorization or licenses, but it is advisable to request a confirmation from the National Water Commission that planned operations will not affect the water table. It is also necessary to confirm that any planned operations will not be conducted in protected natural areas.
Governmental Regulation - British Columbia
Mining activities in British Columbia are subject to the Mines Act and the Health, Safety and Reclamation Code (the “Code”), which are administered by the EMPR, and in particular its Mines and Minerals Resource Division, as well as the Chief Inspector of Mines. Mining permits are issued upon meeting certain conditions, including the provision of a security reclamation bond, and mining activities are regularly inspected for compliance with the Code. At this time, our three properties located in British Columbia are in the care and maintenance phase.
C. Organizational structure
The Company’s Mexican subsidiaries are the wholly-owned subsidiary Oniva Silver and Gold Mines S.A. de C.V., referred to as “Oniva”, the wholly-owned subsidiary Nueva Vizcaya Mining S.A. de C.V., referred to as “Nueva Vizcaya”, Promotora, in which the Company has direct ownership of 79.09%, and Avino Mexico in which the Company has a 98.45% direct ownership and an additional 1.22% indirect ownership held through Promotora. The Company’s total effective ownership interest in Avino Mexico is 99.67%. All of these subsidiaries are incorporated under the laws of Mexico. The Company also previously owned 100% of Bralorne Gold Mines Ltd., incorporated in British Columbia, Canada which was sold during calendar 2019.
D. Property, plant and equipment
The Company was extracting resources and processing it to yield a bulk silver/gold concentrate at the San Gonzalo Mine ceasing operations in 2019 and a copper concentrate from the Avino Mine, both of which are located on the Avino property in Durango, Mexico. The Company is also exploring options to re-process a large tailings resource left from past mining on the Avino property.
All of the Company’s mineral property interests in Canada are wholly-owned by the Company. In Mexico, the Company has a 99.67% interest in Avino Mexico, a Mexican company which is involved in the mining of commercial resources and resource exploration and evaluation, including the operation of the Avino and San Gonzalo Mines.
The Company owns and manages its Canadian properties. Exploration in Canada was previously focused on the Bralorne Mine project in southwest British Columbia which was acquired by the Company in 2014. The Bralorne Mine project was considered in the advanced exploration phase and extracting and processing resources at trial levels took place between 2011 and 2014. In calendar 2019, the Company sold the Bralorne Mine. Avino has in recent years conducted limited prospecting, trenching and drill programs on the Eagle (which was optioned to Alexco Resource Corp. and returned to the Company), Olympic-Kelvin, and Minto properties.
The Company uses detailed sampling to provide the basis for quality estimates and grades of its mineral discoveries. Samples are collected under the supervision of a qualified person who then follows procedures for the collection, sample preparation and chain of custody guidelines for the shipment of the samples to a certified commercial laboratory as set out in National Instrument 43-101. These commercial labs have standard Quality Assurance/Quality Control protocols in place for the various assaying methods that are being used on the samples. In addition, blanks, standards and duplicates are generally used to confirm the validity of the results before they are reported.
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Avino Property, Durango, Mexico
Location
The property is located in Durango State in North Central Mexico, within the Sierra Madre Silver Belt on the eastern edge of the Sierra Madre Occidental mountain range. The nearest major center is the city of Durango, 82 km to the southwest of the property. The property is within the municipality of Pánuco de Coronado between the towns of Pánuco de Coronado and San José de Avino. The property is located at latitude N 24° 53’, longitude W 104° 31’, 14 km northwest of Highway 40D.
The property is situated as illustrated in the figures below:
General Property Location Map
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| Table of Contents |
Regional Property Location Map
Accessibility and Local Resources
The property is accessible by road and is an important part of the local community from which skilled workers are available. Access is provided by Highway 40, a four-lane highway leading from Durango, past the airport and on to the city of Torreon in Coahuila. Successive turn-offs for the property are at Francisco I Madero, Ignacio Zaragoza, and San José de Avino. The Avino mineral concessions are covered by a network of dirt roads which provide easy transport access between all areas of interest on the property and the mill at the main Avino Mine.
The nearest major city is Durango, with a population of approximately 600,000. Durango is a major mining center in Mexico where experienced labour and services can be obtained. The two towns nearest the mine are Pánuco de Coronado and San José de Avino, where the majority of the employees live while working at the mine. Pánuco de Coronado has a population of approximately 12,000, and San José de Avino is a small center with a population of less than 1,000.
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| Table of Contents |
Geology and Mineralization
The property is located within the Sierra de Gamon, on the east flank of the Sierra Madre Occidental. The area is a geological window into the Lower Volcanic series and consists mainly of volcanic flows, sills, and tuffaceous layers of andesite, rhyolite, and trachyte. Individual rock units vary from 300 to 800 m in thickness. Andesitic rocks outcrop over most of the region with other rock types occurring more sparsely to the north.
A large monzonitic intrusion is observed in the region in the form of dykes and small stocks, which appear to be linked to the onset of the Avino vein mineralization. Other post-mineralization dykes of intermediate to felsic composition outcrop in various areas and appear to cause minor structural displacements. Several mafic sills are also found in various parts of the region and are related to recent volcanism.
Regionally, the Avino concession is situated within a 12 km north-south by 8.5 km caldera, which hosts numerous low sulphidation epithermal veins, breccias, stockwork and silicified zones. These zones grade into a “near porphyry” environment, particularly in the Avino Mine area. The caldera has been uplifted by regional north trending block faulting (a graben structure), exposing a window of andesitic pyroclastic rocks of the lower volcanic sequence, a favourable host rock, within the caldera. This sequence is overlain by rhyolite to trachytes with extensive ignimbrite layers forming the upper volcanic sequence and is intruded by monzonite bodies. The basal andesite-bearing conglomerate and underlying Paleozoic basement sedimentary rocks (consisting of shales, sandstones and conglomerates) have been identified on the Avino concession in the south-central portion of the caldera, covering the Guadalupe, Santiago, San Jorge, the San Gonzalo Trend, Malinche, Porterito and Yolanda areas. A northerly trending felsic dyke, probably a feeder to the upper volcanic sequence, transects the Property and many of the veins. The Aguila Mexicana low temperature vein system, with significant widths but overall low precious metal values, trends north-northwest, similar to the felsic dyke and with similar continuity across the property. The two structures may occupy deep crustal faults that controlled volcanism and mineralization, with the felsic dyke structure controlling the emplacement of the Avino, Nuestra Senora and El Fuerte-Potosina volcanic centres and the Aguila Mexicana controlling the Cerro San Jose and El Fuerte-Potosina volcanic centres (Paulter 2006).
Silver and gold-bearing veins cross-cut the various lithologies, and they are generally oriented north-northwest to south-southeast and northwest to southeast. The rocks have been weathered and leached in the upper sections, as a result of contact with atmospheric waters. The oxide tailings material is primarily from this source, whereas the sulphide tailings are predominantly from material sourced at depth from the underground workings. In Mexico, these types of deposits can have large lateral extents, but can be limited in the vertical continuity of grades.
The minerals found during the period of mining of the oxide zone were reported to be argentite, bromargyrite, chalcopyrite, chalcocite, galena, sphalerite, bornite, native silver, gold and native copper. The gangue minerals include hematite, chlorite, quartz, barite, pyrite, arsenopyrite and pyrrhotite. Malachite, anglesite, and limonite are common in the quartz zones of the weathered parts of the oxide material.
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| Table of Contents |
Perspective View of the Property Looking North and Showing the Three Deposits
Property Ownership
The current Avino property is comprised of 23 mineral concessions, totalling 1,103.934 ha.
In 1968, Avino Mines and Resources Ltd. acquired a 49% interest in Avino Mexico and Minera San José de Avino SA, which together held mineral claims totalling 2,626 ha (6,488 ac). Avino Mines and Resources Ltd. retained Vancouver-based Cannon-Hicks Associates Ltd. (Cannon-Hicks), a mining consulting firm, to conduct the exploration and development of the Property. Cannon-Hicks exploration activities included surface and underground sampling and diamond drilling (VSE 1979).
On July 17, 2006, the Company completed the acquisition of Compañía Minera Mexicana de Avino, S.A. de C.V. (“Avino Mexico”), a Mexican corporation, through the acquisition of an additional 39.25% interest in Avino Mexico, which combined with the Company’s pre-existing 49% share of Avino Mexico, brought the Company’s ownership interest in Avino Mexico to 88.25%. The additional 39.25% interest in Avino Mexico was obtained through the acquisition of 79.09% of the common shares of Promotora Avino S.A. de C.V., referred to as “Promotora”, which in turn owns 49.75% of Avino Mexico’s common shares, and the direct acquisition of 1% of the common shares of Avino Mexico.
The Company acquired a further 1.1% interest in Avino Mexico through the acquisition from an estate subject to approval and transfer of the shares to the Company by the trustee for the estate. On December 21, 2007, approval was received and the Company obtained the 1.1% interest from the estate for no additional consideration.
On February 16, 2009, the Company converted existing loans advanced to Avino Mexico into new additional shares of Avino Mexico. As a result, the Company’s ownership interest in Avino Mexico increased to 99.28%.
On June 4, 2013, the Company converted existing loans advanced to Avino Mexico into new additional shares of Avino Mexico, resulting in the Company’s ownership increasing by 0.38% to an effective 99.67%. The issuance of shares to the Company by Avino Mexico on June 4, 2013 resulted in a reduction in the non-controlling interest from 0.72% to 0.34%.
On August 26, 2015, the Company converted existing loans advanced to Avino Mexico into new additional shares, resulting in an increase of the Company’s ownership by 0.01% to an effective 99.67%. The intercompany loans and investments are eliminated upon consolidation of the financial statements. The Company had a pre-existing effective ownership interest of 99.66% in Avino Mexico prior to the 0.01% increase. The issuance of shares to the Company by Avino Mexico on August 26, 2015, resulted in a reduction in the non-controlling interest from 0.34% to 0.33%.
| 26 |
| Table of Contents |
Summary of Property Ownership
Company |
| Relationship to Avino Silver Gold Mines Ltd. |
|
| Effective Ownership of Avino Mine Property (%) |
| ||
Avino Mexico |
| Subsidiary |
|
|
| 98.45 |
| |
Promotora Avino, S.A. de C.V. |
| Subsidiary |
|
|
| 1.22 |
| |
Total Effective Ownership of Avino Mine Property |
|
| - |
|
|
| 99.67 |
|
Estate of Ysita |
| Non-controlling interest |
|
|
| 0.33 |
| |
Total |
|
| - |
|
|
| 100.00 |
|
Mineral Concessions and Agreements
The current property is comprised of 23 mineral concessions, totalling 1,103.934 ha. Of these, 22 mineral concessions totalling 1,005.104 ha, are held by Avino Mexico, Promotora Avino SA de CV, and Susesion de la Sra. Elena del Hoyo Algara de Ysita. Ownership proportions and mineral concessions are summarized in the tables following the next paragraphs regarding Claim Staking and Mineral Tenure in Mexico.
Claim Staking and Mineral Tenure in Mexico
In 1992, a new Mining Law was enacted and has been amended from time to time since then. In general, and for North American companies in particular, Mexican law permits direct or indirect 100% foreign ownership of exploration and mining properties. For practical purposes, most foreign companies establish Mexican subsidiaries. Mining companies are subject to the normal corporate income tax rate of 30%. Further, in 2014 the Mexican Government enacted a new tax reform which includes a 7.5% mining royalty calculated as taxable revenues (except interest and inflationary adjustment), less allowable deductions for income tax purposes (excluding interest, inflationary adjustment, mining concessions and depreciation and depletion), less exploration expenses, and a 0.50% mining royalty on the sale of silver and gold.
In December 2005, amendments to the mining law eliminated the distinction between “exploration” and “exploitation” concessions. Currently, the mining act and regulations provide solely for mining concessions (Concesiones Mineras), which are issued for a term of fifty years, renewable for an additional term of fifty years.
Owners of mining concessions are obliged to:
| · | Execute work under the terms and conditions established in the mining law; |
|
|
|
| · | Pay fees to the Secretaria de Economia on a semi-annual basis; |
|
|
|
| · | Locate on the ground a starting point (mojonera) for the location of the concession, and maintain the mojonera in good condition; |
|
|
|
| · | Begin work on the concession within 90 days of receiving the mining title; |
|
|
|
| · | File annual reports describing the work completed and the amount spent doing the reported work; |
|
|
|
| · | The Direccion General de Minas (“DGM”) has the right to audit the receipts and verify that reported work was completed in the field; and |
|
|
|
| · | Failure to comply with the obligations or to assist the DGM with an audit will result in cancellation of the mining concession. |
| 27 |
| Table of Contents |
Mineral Concessions – Avino Property
Concession Name |
| Concession No. |
|
| Claim Type |
| Location |
| Hectares (ha) |
|
| Date Acquired |
| Expiration Date |
| Cost (US$/ha) |
|
| Payment (US$) |
| ||||
Agrupamiento San Jose (Purisma Chica) |
|
| 155597 |
|
| Lode |
| Pánuco |
|
| 136.708 |
|
| 30/09/1971 |
| 29/09/2021 |
|
| 124.74 |
|
|
| 17,052.91 |
|
Agrupamiento (San Jose) |
|
| 164985 |
|
| Lode |
| Pánuco |
|
| 8 |
|
| 13/08/1979 |
| 12/8/2029 |
|
| 124.74 |
|
|
| 997.92 |
|
Agrupamiento San Jose (El Trompo) |
|
| 184397 |
|
| Lode |
| Pánuco |
|
| 81.547 |
|
| 13/10/1989 |
| 12/10/2039 |
|
| 124.74 |
|
|
| 10,172.12 |
|
Agrupamiento San Jose (Gran Lucero) |
|
| 189477 |
|
| Lode |
| Pánuco |
|
| 161.468 |
|
| 5/12/1990 |
| 4/12/2040 |
|
| 124.74 |
|
|
| 20,141.57 |
|
Agrupamiento San Jose (San Carlos) |
|
| 117411 |
|
| Lode |
| Pánuco |
|
| 4.451 |
|
| 5/2/1961 |
| 16/12/2061 |
|
| 124.74 |
|
|
| 555.16 |
|
Agrupamiento San Jose (San Pedro Y San Pablo) |
|
| 139615 |
|
| Lode |
| Pánuco |
|
| 12 |
|
| 22/06/1959 |
| 21/06/2061 |
|
| 124.74 |
|
|
| 1,496.88 |
|
Aguila Mexicana |
|
| 215733 |
|
| Lode |
| Pánuco |
|
| 36.768 |
|
| 12/3/2004 |
| 29/06/2044 |
|
| 70.88 |
|
|
| 2,606.12 |
|
Ampliacion La Malinche |
|
| 204177 |
|
| Lode |
| Pánuco |
|
| 6.01 |
|
| 18/12/1996 |
| 17/12/2046 |
|
| 124.74 |
|
|
| 749.72 |
|
Ampliacion San Gonzalo |
|
| 191837 |
|
| Lode |
| Pánuco |
|
| 5.85 |
|
| 19/12/1991 |
| 18/12/2041 |
|
| 124.74 |
|
|
| 729.67 |
|
Avino Grande Ix |
|
| 216005 |
|
| Lode |
| Pánuco |
|
| 19.558 |
|
| 2/4/2002 |
| 1/4/2052 |
|
| 70.88 |
|
|
| 1,386.24 |
|
Avino Grande Viii |
|
| 215224 |
|
| Lode |
| Pánuco |
|
| 22.882 |
|
| 14/02/2002 |
| 13/02/2052 |
|
| 70.88 |
|
|
| 1,621.85 |
|
El Caracol |
|
| 215732 |
|
| Lode |
| Pánuco |
|
| 102.382 |
|
| 12/3/2002 |
| 28/04/2044 |
|
| 70.88 |
|
|
| 7,256.84 |
|
El Potrerito |
|
| 185328 |
|
| Lode |
| Pánuco |
|
| 9 |
|
| 14/12/1989 |
| 13/12/2039 |
|
| 124.74 |
|
|
| 1,122.66 |
|
Fernando |
|
| 205401 |
|
| Lode |
| Pánuco |
|
| 72.129 |
|
| 29/08/1997 |
| 28/08/2047 |
|
| 124.74 |
|
|
| 8,997.33 |
|
La Estela |
|
| 179658 |
|
| Lode |
| Pánuco |
|
| 14 |
|
| 11/12/1986 |
| 12/12/2036 |
|
| 124.74 |
|
|
| 1,746.36 |
|
La Malinche |
|
| 203256 |
|
| Lode |
| Pánuco |
|
| 9 |
|
| 28/06/1996 |
| 27/06/2046 |
|
| 124.74 |
|
|
| 1,122.66 |
|
Los Angeles |
|
| 154410 |
|
| Lode |
| Pánuco |
|
| 23.713 |
|
| 25/03/1971 |
| 24/03/2021 |
|
| 124.74 |
|
|
| 2,957.96 |
|
Negro Jose |
|
| 218252 |
|
| Lode |
| Pánuco |
|
| 58 |
|
| 17/10/2002 |
| 16/10/2052 |
|
| 70.88 |
|
|
| 4,111.04 |
|
San Gonzalo |
|
| 190748 |
|
| Lode |
| Pánuco |
|
| 12 |
|
| 29/04/1991 |
| 28/04/2041 |
|
| 124.74 |
|
|
| 1,496.88 |
|
San Martin De Porres |
|
| 222909 |
|
| Lode |
| Pánuco |
|
| 30 |
|
| 15/09/2004 |
| 14/09/2054 |
|
| 70.88 |
|
|
| 2,126.40 |
|
Santa Ana |
|
| 195678 |
|
| Lode |
| Pánuco |
|
| 136.182 |
|
| 14/09/1992 |
| 13/09/2042 |
|
| 124.74 |
|
|
| 16,987.38 |
|
Yolanda |
|
| 191083 |
|
| Lode |
| Pánuco |
|
| 43.458 |
|
| 29/04/1991 |
| 28/04/2041 |
|
| 124.74 |
|
|
| 5,420.91 |
|
Total hectares |
|
|
|
|
|
|
|
|
|
| 1,005.106 |
|
|
|
|
|
|
| 110.29 |
|
|
| 110,856.58 |
|
Note: Concession “La Platosa” is not included because it is not held by Avino.
| 28 |
| Table of Contents |
Map of Avino Mine Property Concessions
| 29 |
| Table of Contents |
On February 18, 2012, through its subsidiary company Avino Mexico, Avino re-entered into an agreement (the Minerales Agreement) with Minerales de Avino, S.A. de C.V. (“Minerales”), whereby Minerales has indirectly granted to Avino the exclusive mining and occupation rights to the La Platosa concession. The La Platosa concession covers 98.83 ha and hosts the Avino vein and ET Zone.
Pursuant to the Minerales Agreement, Avino has the exclusive right to explore and mine the concession for an initial period of 15 years, with the option to extend the agreement for another 5 years. In consideration of the grant of these rights, Avino must pay to Minerales the sum of $250,000, by the issuance of 135,189 common shares of Avino. Avino will have a period of 24 months for the development of mining facilities. In addition, after the development period, if the minimum monthly processing rate of the mine facilities is less than 15,000t, then Avino must pay to Minerales in an event a minimum royalty equal to the applicable NSR royalty based on processing at a minimum rate of 15,000t. In the event of a force majeure, Avino shall pay the minimum royalty as follows:
| · | First quarter: payment of 100% of the minimum royalty |
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| · | Second quarter: payment of 75% of the minimum royalty |
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| · | Third quarter: payment of 50% of the minimum royalty |
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| · | Fourth quarter: payment of 25% of the minimum royalty |
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| · | In case of force majeure still in place after one year of payments, payment shall recommence at a rate of 100% of the minimum royalty and shall continue being made as per the quarterly schedule. |
Avino has also agreed to pay to Minerales a royalty equal to 3.5% of NSRs. If at the commencement of commercial production from the concession.
Minerales has also granted to Avino the exclusive right to purchase a 100% interest in the concession at any time during the term of the Minerales Agreement (or any renewal thereof), upon payment of $8 million within 15 days of Avino’s notice of election to acquire the Property. The purchase would be completed under a separate purchase agreement for the legal transfer of the concession. This agreement re-places all other previous agreements.
During the month of May of each year, Avino must file assessment work made on each concession for the immediately preceding calendar year. During the months of January and July of each year, Avino must pay in advance the mining taxes which are based on the surface of the concession and the number of years that have elapsed since it was issued.
Consistent with the mining regulations of Mexico, cadastral surveys have been carried out for all the listed mineral concessions as part of the field staking prior to recording. It is believed that all concessions are current and up to date. Mineral concessions in Mexico do not include surface rights. Avino has entered into agreements with communal land owners (Ejidos) of San José de Avino, for the temporary occupation and surface rights of the concessions.
History
Avino Mine
The Avino deposit was originally discovered around 1555 by the Spanish conquistador, Don Francisco de Ibarra. In 1562, Francisco de Ibarra, was appointed governor of the newly formed province of Nueva Vizcaya, in the Viceroyalty of Nueva España (New Spain) and, in 1563, founded the town of Durango. Francisco de Ibarra led several expeditions in search of silver deposits in the region and is recognized as having established Minas de Avino, present day Avino Mine; San Martín, Durango; and Pánuco, Sinaloa. Mining activities at the Avino Mine are said to have commenced in 1562-1563 and continued up to the onset of the War of Independence (1810) when operations were interrupted but later continued through to the Mexican Revolution the early 1900s.
In 1880, the mines were taken over by Avino Mines Ltd., a company controlled by American and English interests. With aid of new industrial technology the Avino Mine developed into a more efficient mining operation. By 1908, the Avino Mine was considered one of the largest open pit mines in the world and equipped with one of the largest smelters.
During the outbreak of the Mexican Revolution in 1910, proceeds from the mine supplied funds to the revolutionary forces. Since much of the fighting occurred in and around Durango and the risk posed by brigands hiding in the mountains was high, the mine was abandoned in 1912.
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Between 1912 and 1968, the mine was worked intermittently on a very small scale (Avino Annual Report 1980). There is no known historical record of production from the Avino Mine during this period. The Avino Property was acquired under current ownership in 1968.
In 1968, the current operators of the Avino property acquired an initial 49% interest in the property. Initial mining was by open-cut in the oxide material from 1976 until 1992 when the stripping ratio was becoming excessive and sulphide content increasing, at which date the extraction was transferred to underground. This necessitated a mill change from the prior lead concentrate production to one of copper carrying silver and gold. In the 1990s a larger ball mill was installed to increase throughput to 1,000 t/d.
During the underground mining period starting in 1992, Trackless mining was adopted, with all underground advancement headings sized at 4m x 4m. Mine access from surface was by a spiral ramp from a portal on the south side of the hill and there is a secondary ramp– Rampo El Trompo – on the north side, close to the maintenance shop.
Production was by sub-level stoping with a sub-vertical increment restricted from 11m to 15m to countermine dilution arising from an occasional, semi-incompetent hanging-wall. Stopes were started by raising, and then slashing to the designated width. Blasting was by parallel holes drilled with a traditional drill wagon. Rib and sill pillars were left but are generally considered as non–recoverable.
Standard mine development was by using boom jumbo with waste being dumped where possible into old stopes. Ore mucking and haulage was by scoop tram and dumped on surface at the main portal. The ore was then picked up and transferred to the plant ROM hopper about 300 m away.
A surface-stacked, downstream tailings-system was adopted with cyclones on the tails discharge line to provide coarse wall-material. Decant water was recovered by a back-slope gradient and pumping, for mill re-circulation. A second, stepped-back bench was created, possibly about 1986 or 1987. A third bench was started, apparently in 1990, with about two years placement of final oxide material then continued with the sulphide tails.
The Avino Mine and processing plant were serviced by a heavy equipment repair shop, mechanical and electrical shops, assay office, metallurgical laboratory, warehouse and other auxiliary facilities. Electric power was supplied by the government-owned Federal Electricity Commission.
In November 2001, delays in payments, low metals prices and the closure of the toll smelter led to the suspension of mine operations. During the 27-year period of extracting and processing resources starting in 1974, output from the Avino mine totalled approximately 497 tons of silver, three tons of gold, and 11,000 tons of copper. When mining activities stopped, level 12 of the mine had been reached.
The property was mainly dormant from 2002 to 2006, largely due to low copper and silver prices.
San Gonzalo Mine
The history of the San Gonzalo deposit is not well known. Shallow workings from an old mine are present in the San Gonzalo vein, and they consist of small underground workings which were originally accessed by a five-level vertical shaft. These workings were sampled by M. Evans in 1954. The workings are accessible through a raise that was driven in 2012 which is being used for ventilation. No attempts have been made to duplicate the results of the 1954 sampling. The limits of past workings have been taken from old maps but are assumed to be reasonably accurate.
Current Condition
San Gonzalo Mine
Avino gained control of the property in July 2006 and exploration (see exploration section below) resumed that year; this led to the discovery of new mineralization at San Gonzalo.
The original underground workings extend over an area approximately 150 m along strike and 136 m in depth. In 2007-08 Avino conducted a 42-hole, 9,204 meter drill program to explore the San Gonzalo deposit. Drilling produced encouraging results which were input into a resource calculation in 2009.
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Following a 2009 mineral resource estimate, independently verified preliminary metallurgical testing on a composite sample of San Gonzalo material was completed at SGS Minerals Services in Durango, Mexico. The results indicated the silver and gold minerals from the San Gonzalo vein at lower levels would respond favorably to flotation with gold recoveries of 89 to 90% and silver recoveries of 92 to 93%.
The San Gonzalo mining activities began in January 2010. DMG, the mining contractor, was contracted to provide this service. Their original scope of work was to drive the main haulage decline to level 2 and to intersect the vein; drift and sample to the east and the west on the vein, and to determine the extent of the mineralized zones and to extract the 10,000 tonne bulk sample for testing as per the recommendations of the Orequest Mineral Resource Estimate Report. A smaller decline to level 1 was also commissioned and its purpose was for ventilation and an escape route once the two levels were connected by raises from level 2 to level 1. This scope of work was extended with the successful completion of the bulk sample program, and mining continued with the aim of developing San Gonzalo to a state whereby it could provide mill feed at the rate of 250 tonnes per day on a sustained basis.
Processing of San Gonzalo material began in late November 2010 in the newly refurbished 250 tonne per day bulk flotation circuit. Testing with extracted material was performed initially to ensure the circuit was operating satisfactorily before the bulk sample test with material from the stopes began in January of 2011. The bulk sample test continued until early April 2011 when the limit of 10,000 tonnes was achieved for the independent verification. Processing of the remaining San Gonzalo material on stockpile continued until the middle of May. During this period of November 2010 to May 2011, the plant processed a total of 19,850 tonnes leaving approximately 14,798 tonnes remaining on stockpile in inventory by calculation.
The majority of the concentrate processed during the bulk sample test was sold and the assays from the concentrate sale were used to reconcile the mill balance as reported following the verification of the bulk sampling results. All the remaining concentrate processed from the extracted material was shipped and sold early in 2012.
Following the completion of the bulk sample which was comprised of material from levels 1 and 2, mine advancement at San Gonzalo has been ongoing. In 2012, the remaining material from the stopes on level 2 was mined and brought to the surface. During 2012, level 3 was the main focus of mining activities with two stopes having been developed and partially extracted by the end of the year. By the end of July, a decline from level 3 to level 4 had been completed and work on the ramp to level 5 had commenced. By year-end, level 5 had been reached and stope advancement on level 4 was underway. Underground advancement for 2012 totaled 2,558 meters consisting of ramp advancement, cross cuts, drifts and raises.
During 2013 the extraction of resources came mainly from level 4. Advancement of level 5 was ongoing and by year end a sampling program totaling 440 meters had been completed. The ramp from level 5 to level 6 had been completed by April 2014.
During 2014, mine exploration and advancement included the discovery of significant additional mineralization along strike to the southeast while drifting on level 5. These areas had not previously been considered for mining. Following this discovery, the extension of this new mineralized zone was explored on levels 2 through 6. Previous exploration did not encounter this area as the vein had pinched out and an offset of the vein was not considered at that time. During 2014, extraction of resources came primarily from levels 5 and 6 as well as from mined material from the new zone on level 3. Advancement work on level 6 continued throughout the fourth quarter, and by year end the main haulage ramp had progressed past the level 7 elevation of 2,043 meters above sea level towards level 8.
During 2015, San Gonzalo mill feed came primarily from stopes on levels 4, 5 and 6. During the second quarter, the ramp advance was deferred (at 70 metres below level 7) in favor of using the mining equipment to advance levels 5, 6 and 6.5 laterally along the San Gonzalo structure to the East and West where the new mineralized zones were identified in 2014.
During 2016, San Gonzalo mill feed came from stopes on level 4, 5, 6 and 7 with the bulk of the tonnage coming from stopes 4-050, 5-030, 5-500, 5-600, 6-030, 6-100 and 7-070.
In 2017, San Gonzalo mill feed came from stopes on levels 4, 5, 6 and 7 with most of the tonnage coming from stopes 4-020, 6-030, 6.5-070 and 7.5-200. Smaller amounts came from 5-020 and 5-030.
In 2018, San Gonzalo mill feed came from stopes on levels 2, 3, 4, 5 and 6 with most of the tonnage coming from stopes 3-020, 4-010, 4-020, 5-010, 6-020 and 6.5-070. Smaller amounts came from 2-380 and 6.5-100.
In 2019, San Gonzalo mill feed came from stopes on levels 2, 4 4.5 and 5 of the Santiago and Angelica vein with most of the tonnage coming from stopes 4-400, 4-500, 4.5- 010, 5 -400 and 5-500. These veins are adjacent to San Gonzalo and are accessed via the San Gonzalo underground infrastructure. During the last quarter of the year, San Gonzalo reached the end of its current resources and mining was stopped. It will remain open for continued exploration at different underground levels.
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Access to the underground at San Gonzalo is via a 4m by 4m decline developed at -12%. The decline is developed at about 20m to 25m from the mineralized material. San Gonzalo is using shrinkage mining for the narrower mineralized material, ~1.4m in width and cut and fill mining for mineralized material wider than 2m.
The San Gonzalo Mine has been the subject of four mineral resource estimates, the most recent of which was published on January 13, 2021; please see the section below on Mineral Resource Estimates for more details.
Avino Mine
In February 2012, a new long-term royalty agreement was signed to grant Avino mining rights to the main Avino vein. At the time of signing this agreement, Avino planned to refurbish the existing 1,000 TPD circuit to process the material from the main Avino vein.
To resume underground advancement at the Avino Mine, the existing underground workings had to be de-watered; the dewatering process was completed in May 2014. The process lasted for a total of 482 days, and successfully removed 1,013,069 cubic meters of acidic water which was then treated for the removal of base metals using lime. The treated water, which met agricultural standards for discharge, was used for mill processes and the excess was gravity fed to the Company-built La Caricol dam; sludge from the water treatment plant was disposed of in the tailings storage facility.
Following dewatering and rehabilitation of the haulage ramp, underground mining activities re-commenced at the Avino Mine. Full scale mining began at level 11.5 with drifts heading east and west along the vein during the third quarter of 2014. By the end of 2014, a total of 877 metres of underground advancement had taken place on levels 11.0 and 12.0 with the haulage ramp advancing to level 12.5.
Initially, new material from underground at Avino was processed on a limited scale using the existing 250 TPD Mill Circuit 2. By year end, rehabilitation of the 1,000 TPD Mill Circuit 3 had been completed and sufficient material had been stockpiled; on January 1, 2015, the Company commenced testing of mining and milling methods at levels anticipated for full-scale activities.
During 2015, underground advancement totalled 5,056 metres and took place mainly in levels 12.5 to 14.5 with the ramp advancing to level 15. The breakdown of the advance in 2015 consisted of 2,855 metres of drifts, 785 metres of ramp, 1,050 metres of crosscuts and 366 metres of raises.
During 2016, underground advancement totaled 3,901 metres with the ramp advancing to level 16. Breakdown of the advance consisted of 1,489 metres of drifts, 415 metres of ramp 1,609 metres of crosscuts and 390 metres of raises. Production mining with the Trac Drill took place on levels 12, 12.5 and 14.5. Mill feed from development mining came from levels 14.5, 15, 15.5 and the crosscuts towards the hanging wall breccia on levels 12.5 and 14.5 where high gold values were encountered.
During 2017, underground advancement totaled 2,905 metres with the ramp advancing to level 16.5. Breakdown of the advance consisted of 961 metres of drifts, 287 metres of ramp, 1,375 metres of crosscuts and 283 metres of raises. Production mining with the Trac Drill took place on all the developed levels up to level 15. Some mill feed from development mining came from levels 15.5 and 16.
In 2017, the Company announced plans to increase the throughput capacity of the processing plant by adding an additional 1,000 TPD circuit intended to process mill feed from another area of the Mine known as San Luis. The San Luis area of the Avino Mine was last mined in the 1990’s and is accessed through a separate portal located approximately 2 km from the main entrance of the Avino Mine (Elena Tolosa area). Current resources at San Luis were included in the most recent resource estimate on the Avino property, which can be found in Avino’s news release dated February 21, 2018
During 2018 work at San Luis was primarily focused on restoration of the main haulage ramp, which was completed during the third quarter. With the haulage ramp complete, work is underway to begin drifting on levels 6 and 6.5, followed by levels 7, 7.5, 8, 8.5 and 9. Most of these areas were partially developed during the 1980’s and 90’s prior to the mine’s closure. Underground development at San Luis was temporarily reduced to save costs in the third and fourth quarters. Mill feed from the San Luis area was processed using the 250 TPD Mill Circuit 2.
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During 2018, underground advancement totaled 3,462 metres with the ramp advancing to level 17. Breakdown of the advance consisted of 1,502 metres of drifts, 224 metres of ramp, 1,336 metres of crosscuts and 400 metres of raises. Production mining with the Trac Drill took place on all the developed levels up to level 17. Some mill feed from development mining came from levels 15.5 and 16. The drill results were disclosed as follows:
| · | The Company announced drill results from Avino Open Pit Mine area on its press release dated December 4, 2018 and on Form 6-K with SEC on the same date; |
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| · | The Company announced drill results from the El Chirumbo and Guadalupe Area of the Avino Property on its press release dated July 11, 2018 and on Form 6-K with SEC on the same date; |
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| · | The Company announced drill results from its current exploration drill program on the El Chirumbo, Guadelupe, and San Juventino Area of the Avino Property on its press release dated February 6, 2018 and on Form 6-K with SEC on the same date. |
During 2019, underground advancement totaled 3,677 meters. There were no advancements with the ramp as level 17 is the deepest level of the mine currently. Breakdown of the advance consisted of 1578 metres of drifts, 1850 metres of crosscuts and 249 metres of raises. Production mining with the trac drill and jumbo took place on level 11.5, 12, 16.5 and 17 complemented with development mining mill feed from levels 12, 16.5 and 17.
A sampling campaign comprising 52 recent and historic holes that were previously drilled in the hanging-wall of the Avino vein stockwork system located on the Avino property. The drill results were disclosed as follows:
| · | The Company announced drills results from the Hanging-Wall Breccia sampling campaign on its press release dated July 23, 2019 and on Form 6-K with SEC on the same date; |
During 2020, underground advancement totaled 1,267 meters. There were no advancements with the ramp as level 17 is the deepest level of the mine currently. Production mining with the trac drill and jumbo took place on level 16.5 and 17.
The Avino Mine has been the subject of four mineral resource estimates, the most recent of which was published on January 13, 2021 and amended December 20, 2021; please see the section below on Mineral Resource Estimates for more details.
Tailings Mineral Resource
Avino continues to explore options for exploiting the mine’s tailings resource left from past mining of the Avino Vein. The tailings are situated approximately 500 m west-southwest of the main shaft to the main Avino mine.
This asset includes oxide and sulphide tailings, each requiring separate treatment methods. The tailings mineral resource was created between 1976 and 2001 during Avino’s previous operation from both open pit (oxide tailings) then later underground (sulphide tailings) mining. Improved metals markets now potentially enable Avino to process the remaining silver and gold in the tailings.
The existing tailings storage facility is presently being used in connection with the operation of Mill Circuits 1, 2, 3 and 4. In 2017-2019, the Company continued to evaluate plans to build a new tailings storage facility and other tailings storage options which is necessary to allow the existing TSF to be decommissioned, which will enable Avino to begin assessing the upper sulphide bench as well as the lower oxide bench in areas that are currently being used to store tailings from our active operations. The assessment work is part of the recommendations contained in a 2013 technical report intended to advance the oxide tailings mineral resource towards a production decision for an agglomerated heap leach Merrill-Crowe precipitation operation.
In 2019, the construction of the tailings thickener, which reduces water sent to the tailings facility, was completed and is now in full operation.
Also in 2019, a geomembrane was installed in a portion of the old historic open pit to allow for tailings deposition. Tailings were sent to this area starting in October 2019 and will continue into 2021.
For longer term tailings storage the Company has been exploring the potential of dry stack tailings for another one of its permitted tailings storage facilities, which we refer to as, TSF#2.
For 2021, there were no changes to the tailings storage plans or the oxide tailings resource.
The oxide tailings were produced between 1974 and 1993 from open pit mining of the main Avino vein. For further details regarding the oxide tailings, please see the sections below titled: Mineral Resource Estimates and Preliminary Economic Assessment on the Oxide Tailings Resource or the Company’s Technical Report on the Avino Property, dated January 13, 2021.
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Project Infrastructure
The Avino Mine is connected to the local power grid with a line capacity quoted at 4 MW when the mine last operated in 2001. With the shutdown, much of this excess power was diverted to the surrounding towns in the district. Between 2001 and 2016 the powerline provided only 1,000 kW of power with 500 kW servicing the mill, 400 kW for San Gonzalo and the balance for the well at Galeana, the employee accommodation facility and water reclamation from the tailings dam. In 2009 a power line to the San Gonzalo Mine was built to replace the contractor’s diesel generator used during mine advancement.
Discussions with CFE, the federal electricity commission in Mexico, on a new 34.5kV power line were completed in 2014 along with a study covering the proposed locations of towers and power poles. Additionally, in October 2014, CFE informed the Company that it had completed internal upgrades to several transformers that would enable CFE to provide Avino with sufficient grid power to operate all three mill circuits and both underground locations in the interim period prior to the commissioning of the new power line. Construction of the new power line was completed in 2015; and energized in June 2016. The new line is now fully functional at the design capacity of 5 megawatts (“MW”). Current power consumption at the mine is approximately 2MW, leaving sufficient additional power for near-term expansion projects that are currently being organized, such as the Oxide Tailings Heap Leach/Merrill-Crowe Precipitation Project (which would require 1 MW) and expansion of the processing plant, which will require a further 1 MW.
While water supply was found to be limiting in the past, Avino has taken the necessary steps to secure adequate supply. To supplement the 1 Mm3 dam built by Avino in 1989, a well (Galeana) was drilled to the west of the mine site in 1996 to a depth of 400 m and is reported to have a water level at 40 m below the collar. From this, a pipeline connection has been installed to the mine. Additionally, Avino Mexico, in cooperation with the government, has repaired a government dam (El Caracol) and raised the dam wall by 6 m. A pipeline to the mine has also been installed. This dam is shared with the population of Pánuco de Coronado for their irrigation needs, as 60% for the mine and 40% for the town, with government setting the annual total take to which percent sharing applies. Mine site water use is from a combination of tailings water reclaim, El Caracol, and Galeana with preference given to mine site sources for which no water conservation charge was applicable.
Both the San Gonzalo and Avino mines are equipped with two mine dewatering pumps. The pumps at San Gonzalo are each capable of pumping 20L/s to surface via 2 six inch lines. One pump operates 24 hours per day and the other 10 hours per day. At Avino one pump operates constantly with the second on standby. Each pump is capable of handling the entire inflow via a 6 inch line. Water from both mines is pumped to the surface and is sent to the process water tanks in the plant. Any water not used in the plant flows by gravity to the La Caricol Dam for agricultural use.
Processing Plant
The Company’s processing plant was built in the 1970’s and was refurbished to accommodate increased capacity in 1993. Most of the infrastructure was in place for two 250 tpd circuits and one 1,000 tpd circuit. At the time of shutdown in 2001 due to low commodity prices and the closure of a smelter, the mill was operating at an average rate of 1,130 tpd.
In order to perform the bulk sample program at San Gonzalo, major infrastructure spending and mill repairs were required. Most of these expenditures took place in 2008 and 2009 with additional spending required more recently as further needs arose to meet the demands of mining activities.
Beginning in May 2011, when the San Gonzalo stockpiled material was depleted following the bulk sample, the process plant was used to treat old stockpiles from historic extraction at the Avino Mine. These were lower-grade stockpiles which were originally considered marginal or waste due to prevailing metal prices at the time. These stockpiles were processed until underground advancement at San Gonzalo was sufficient to provide mill feed at a sustained rate of 250 tonnes per day. On October 1, 2012, Avino made the transition to San Gonzalo mill feed and declared that resource extraction and processing had reached levels intended by management at San Gonzalo.
During the second quarter of 2013, a second 250 tpd circuit (“Mill Circuit 2”) in the mill was commissioned and put into operation for the processing of remaining Avino Mine surface stockpiles. In September 2014, Mill Circuit 2 began processing new mineralized material from the Avino Mine during the mine’s commissioning phase. On January 1, 2015, Mill Circuit 2 transitioned to processing feed material from the San Gonzalo Mine stockpile which continued throughout the first half of 2015 apart from May, when Mill Circuit 2 was once again used to process Avino Mine surface stockpiles. During the second half of 2015, Mill Circuit 2 was used to process mineralized material from the Avino Mine underground in July, August, November and December; and mineralized material from the San Gonzalo Mine during September and October. In 2016, Mill Circuit 2 is expected to primarily process mineralized material from the Avino Mine.
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In November 2014, Avino completed its Mill Circuit 3 expansion in preparation for the re-opening of the main Avino Mine. The refurbished circuit was initially commissioned using historic above ground Avino Mine stockpiles during November and December of 2014. Mill Circuit 3 began processing new mill feed from underground at the Avino Mine beginning on January 1, 2015. During 2015, Mill Circuit 3 was optimized to process approximately 1,150 tonnes per day. In the second quarter of 2016, the Company declared that effective April 1, 2016, extraction and processing had reached levels intended by management at the Avino Mine.
In June 2018, Avino completed its 1,000 TPD Mill Circuit 4 expansion, increasing the plants throughput capacity to 2,650 TPD. During the startup, testing and commissioning phase which lasted through the end of 2018, Mill Circuit 4 processed material from historic above ground Avino Mine stockpiles. Mill Circuit 4 is expected to transition to processing newly mined mill feed from the San Luis area of the Avino Mine in 2019 once sufficient development work is completed to support the 1,000 TPD circuit.
For 2020 there have been no material changes to the mill and equipment. The processing configuration is tabulated below
Circuit # |
| Operating Throughput (TPD) |
| Sources of Mill Feed |
| Operating Status |
1 |
| 250 |
| Avino Mine (“Hanging Wall Breccia”) |
| Online |
2 |
| 250 |
| Avino Mine (“ET”) |
| Online |
3 |
| 1,050 |
| Avino Mine (“ET”) |
| Online |
4 |
| 1,050 |
| Avino Mine (“ET”) |
| Online |
| · | In 2020 Circuit 1 processed mineralized material from Hanging Wall Breccia (“HWB”) area of the Avino Mine. |
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| · | Circuit 2 is expected to continue to process mineralized material from the Elena Tolosa (“ET”) area of the Avino Mine. |
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| · | Circuit 3 is expected to continue to process mineralized material from the Elena Tolosa (“ET”) area of the Avino Mine. |
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| · | Circuit 4 is expected to process mineralized material from Elena Tolosa (“ET”) area of the Avino Mine. |
_______________
*No feasibility study or preliminary economic assessment has been carried out on the Avino Mine and San Gonzalo Mine resources. The Company has determined extraction and processing of resources at levels intended by management without undertaking any further formal studies.
** The San Luis area of the Avino Mine going forward will be referred to as Avino West.
Mining Fleet
To operate the Avino and San Gonzalo Mines, Avino’s mining fleet currently consists of 3 front end loaders, a D6R Cat dozer, 12 scoop trams, 6 jumbos, 2 combination backhoe and rock breakers, 3 excavators, a forklift, 2 surface and an underground diamond drill, 2 mini loaders, a CAT grader suitable for both surface and underground, 20 contractor provided haulage trucks, a shotcrete machine, a welding machine, 33 light service passenger vehicles, a contractor provided water truck, a 15 tonne capacity contractor provided truck to distribute explosives and a contractor provided fuel truck, 3 power generators, 7 air compressors, a mobile crane, a mobile crushing plant and an ambulance.
Costs Incurred to Date
The table below for the years ended December 31, 2019 to December 31, 2021 contains selected financial data prepared in accordance with IFRS derived from our audited consolidated financial statements for the periods ending on such dates.
|
| Exploration and Evaluation Expenditures |
|
| Capital Expenditures |
|
| Mine Operating Expenditures |
|
| Administrative Expenditures* |
|
| Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
2019 |
|
| 134,000 |
|
|
| 3,223,000 |
|
|
| 32,016,000 |
|
|
| 4,130,000 |
|
|
| 39,503,000 |
|
2020 |
|
| 223,000 |
|
|
| 1,460,000 |
|
|
| 15,832,000 |
|
|
| 4,759,000 |
|
|
| 22,274,000 |
|
2021 |
|
| 1,003,000 |
|
|
| 2,844,000 |
|
|
| 7,681,000 |
|
|
| 5,035,000 |
|
|
| 16,563,000 |
|
_________
*Operating and administrative expenses do not reflect other income or expenses or other comprehensive income or loss.
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Below is a table summarizing the estimated planned future costs for 2022. The Company expects that cash flows generated from mining operations will cover its planned future costs. No assurance can be given that the Company will be able to generate revenues to cover the expenses in the table below or that actual future costs will equal the amounts in the table below. If the Company is unable to raise capital to meet its planned future costs, it may have to curtail planned activities.
Year |
| Mine Operating and Administrative Expenses |
|
| Capital and Exploration and Evaluation Expenditures |
|
| TOTAL |
| |||
2022 |
| $ | 34,170,000 |
|
| $ | 8,265,000 |
|
| $ | 42,435,000 |
|
Mineral Reserve Estimates
There are currently no mineral reserves on the Property.
Mineral Resource Estimates
Below is a summary of current mineral resources at the San Gonzalo and Avino Mines as well as the oxide tailings mineral resource (as reported in the January 13, 2021 Technical Report on the Avino Property, Durango, Mexico, as Amended in December 2021) grouped into the measured, indicated and inferred categories (the “Technical Report”). The effective date of the resource estimates is January 13, 2021.
The mineral resource estimates were prepared by Michael O’Brien P.Geo., Pr.Sci.Nat., who is a “Qualified Person” within the meaning of National Instrument 43-101 and who is an employee of Red Pennant Communications Corp.) and independent of Avino, as defined by Section 1.5 of NI 43-101.
Avino Mine Mineral Resources Summary as at October 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||
Measured Indicated Mineral Resources |
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| Grade |
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| Metal Contents |
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Resource Category |
| Deposit |
| Cut-off (AgEQ g/t) |
|
| Metric Tonnes |
|
| AgEQ g/t |
|
| Ag g/t |
|
| Au g/t |
|
| Cu % |
|
| AgEQ Million Tr Oz* |
|
| Ag Million Tr oz |
|
| Au Thousand Tr Oz |
|
| Cu Tonnes |
| ||||||||||
Measured |
| Avino - ET |
|
| 60 |
|
|
| 6,102,000 |
|
|
| 146 |
|
|
| 64 |
|
|
| 0.53 |
|
|
| 0.54 |
|
|
| 28.6 |
|
|
| 12.6 |
|
|
| 105 |
|
|
| 33,035 |
|
Measured |
| San Gonzalo System |
|
| 130 |
|
|
| 267,000 |
|
|
| 356 |
|
|
| 263 |
|
|
| 1.36 |
|
|
| 0.00 |
|
|
| 3.1 |
|
|
| 2.3 |
|
|
| 12.0 |
|
|
| 0 |
|
Total Measured |
| All Deposits |
|
|
|
|
|
| 6,369,000 |
|
|
| 155 |
|
|
| 73 |
|
|
| 0.57 |
|
|
| 0.52 |
|
|
| 31.7 |
|
|
| 14.9 |
|
|
| 116 |
|
|
| 33,035 |
|
Indicated |
| Avino - ET |
|
| 60 |
|
|
| 20,365,000 |
|
|
| 120 |
|
|
| 50 |
|
|
| 0.53 |
|
|
| 0.41 |
|
|
| 78.2 |
|
|
| 32.4 |
|
|
| 347 |
|
|
| 83,215 |
|
Indicated |
| San Gonzalo System |
|
| 130 |
|
|
| 216,000 |
|
|
| 304 |
|
|
| 230 |
|
|
| 1.09 |
|
|
| 0.00 |
|
|
| 2.1 |
|
|
| 1.6 |
|
|
| 8.0 |
|
|
| 0.00 |
|
Indicated |
| Oxide Tailings |
|
| 50 |
|
|
| 1,120,000 |
|
|
| 124 |
|
|
| 89 |
|
|
| 0.42 |
|
|
| 0.00 |
|
|
| 4.5 |
|
|
| 3.2 |
|
|
| 15.0 |
|
|
| 0.00 |
|
Total Indicated |
| All Deposits |
|
|
|
|
|
| 21,710,000 |
|
|
| 122 |
|
|
| 53 |
|
|
| 0.53 |
|
|
| 0.38 |
|
|
| 84.8 |
|
|
| 37.2 |
|
|
| 370 |
|
|
| 83,215 |
|
Total Measured Indicated |
|
|
|
|
|
|
|
| 28,070,000 |
|
|
| 129 |
|
|
| 58 |
|
|
| 0.54 |
|
|
| 0.41 |
|
|
| 116.5 |
|
|
| 52.1 |
|
|
| 486 |
|
|
| 116,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inferred Mineral Resources | ||||||||||||||||||||||||||||||||||||||||||
Inferred |
| Deposit |
| Cut-off (AgEQ g/t) |
|
| Metric tonnes |
|
| AgEQ g/t |
|
| Ag g/t |
|
| Au g/t |
|
| Cu % |
|
| AgEQ Million Tr Oz* |
|
| Ag Million Tr oz |
|
| Au Thousand Tr Oz |
|
| Cu T |
| ||||||||||
Inferred |
| Avino - ET |
|
| 60 |
|
|
| 9,626,000 |
|
|
| 100 |
|
|
| 40 |
|
|
| 0.43 |
|
|
| 0.36 |
|
|
| 30.8 |
|
|
| 12.4 |
|
|
| 135 |
|
|
| 34,810 |
|
Inferred |
| San Gonzalo System |
|
| 130 |
|
|
| 85,000 |
|
|
| 298 |
|
|
| 233 |
|
|
| 0.96 |
|
|
| 0.00 |
|
|
| 0.8 |
|
|
| 0.6 |
|
|
| 3.0 |
|
|
| 0 |
|
Inferred |
| Oxide Tailings |
|
| 50 |
|
|
| 1,230,000 |
|
|
| 125 |
|
|
| 85 |
|
|
| 0.47 |
|
|
| 0.00 |
|
|
| 5.0 |
|
|
| 3.4 |
|
|
| 19.0 |
|
|
| 0 |
|
Total Inferred |
| All Deposits |
|
|
|
|
|
| 10,941,000 |
|
|
| 104 |
|
|
| 47 |
|
|
| 0.44 |
|
|
| 0.32 |
|
|
| 36.6 |
|
|
| 16.4 |
|
|
| 156 |
|
|
| 34,810 |
|
Notes:
Figures may not add to totals shown due to rounding.
Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.
The Mineral Resource estimate is classified in accordance with the Canadian Institute of Mining, Metallurgy and Petroleum’s (CIM) Definition Standards for Mineral Resources and Mineral Reserves incorporated by reference into National Instrument 43-101 (NI 43-101) Standards of Disclosure for Mineral Projects.
Based on recent mining costs (Section 21) Mineral Resources are reported at cut-off grades 60 g/t, 130 g/t, and 50 g/t AgEQ grade for ET, San Gonzalo, and oxide tailings, respectively.
AgEQ or silver equivalent ounces are notational, based on the combined value of metals expressed as silver ounces
Cut-off grades were calculated using the following consensus metal price assumptions: gold price of US$1,875/oz, silver price of US$24.00/oz, and copper price of US$3.10/lb.
Metal recovery is based on operational results and column testing.
The silver equivalent was back calculated using the following formulas: ET AgEQ = Ag + 65.1 * Au + 86.6 * Cu ppm / 10,000 ; SG AgEQ = Ag + 72.54 * Au; Oxide Tailings AgEQ = Ag + 84.55 * Au.
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Method of Calculation
The estimation methods used were substantially the same for all three deposits (Ordinary Kriging), providing a consistent baseline for strategic planning.
Mineral resources were estimated by ordinary kriging, optimized using kriging neighborhood analysis and verified by means of nearest neighbor and inverse distance methods, swathplot comparisons of estimates and visual inspections. Block models were created for the San Gonzalo and Avino Vein Systems and the Oxide Tailings deposit and estimates were made utilizing blocks of sizes 20 m easting x 5 m northing x 10 m elevation for Avino (ET Mine), sizes 10 m easting x 5 m northing x10 m elevation for San Gonzalo and 40 m easting x 40 m northing x 2 m elevation for Oxide Tailings.
Classification of the mineral resource was based on ‘slope of regression’ as a measure of uncertainty, with adjustment to practical geometries using geological knowledge of the deposit.
Fundamental changes since the previous mineral resource estimates are (1) depletion due to mining (over 800 thousand tonnes milled since the beginning of 2017), (2) significant new sampling information (3) changes to cut-off calculations and (4) reclassification of mineral resources in the light of improved understanding of confidence in the deposits from the underground channel samples and drill hole samples.
More sampling information does not always lead to direct increases in resource tonnages and contained metal. In some cases, the new information provides improved understanding (developed by variogram modelling and kriging neighborhood analysis) that may demote some portions of mineral resource from high confidence categories, such as measured and indicated, to a lower confidence category such as inferred.
Currently, for the San Gonzalo and Avino Vein Systems, estimated blocks more than thirty five metres from sampling are not considered to be of sufficient confidence to be included in the indicated category resources and have been classified as inferred resources.
For the Oxide Tailings, estimated blocks more than fifty metres from sampling are not considered to be sufficiently confident to be included in the indicated category resources.
Silver equivalent cut-off grades were applied to satisfy the condition of reasonable prospects for eventual economic extraction and were calculated using conversion formulas AgEQ = Ag + 65.1 * Au + 86.6 * Cu for Avino Vein, AgEQ = Ag + 84.55 * Au for oxide tailings and AgEQ = Ag + 72.54 * Au for San Gonzalo vein System.
Cut-off grades were calculated using current costs, silver price of US$24.00oz, gold price of US$1,875/oz and copper price of US$3.10/lb.
Mineral Resource Discussions
Oxide Tailings
A mineral resource was estimated for the oxide tailings generated from prior historical mining operations, using ordinary kriging (OK) interpolation and uncapped grades. The assay values for this estimate are based on 28 drill holes, which were completed on the oxide tailings by Compañía Minera Mexicana de Avino, S.A. de C.V. in 1990, and include 407.75 m of drilling and 383 assays of both gold and silver. The oxide tailings are estimated to contain a 2.34 Mt inferred mineral resource at a grade of 91.3 g/t silver and 0.54 g/t gold, with a 50 g/t silver cut-off. The entire resource is classified as an inferred mineral resource, based on the historical nature of the drilling (prior to the institution of NI 43-101 and associated quality assurance/quality control (QA/QC) requirements). Verification samples collected confirmed the presence of gold and silver mineralization at grades similar to those obtained in the original tailings drilling campaign and confirmed that the Mine’s lab assays are not materially different from those of external labs. It is Red Pennant Communications Corp’s opinion that the oxide tailings sampling data are considered sufficient to support the purpose of the Technical Report and a current inferred mineral resource.
Mineral Resources
The new mineral resource estimates include data from 57 holes drilled during the last two years. Due to closer drill hole spacing, there is sufficient information to justify elevating 1,330,000 tonnes of the previous 2,340,000 tonnes of inferred resources to the indicated category. However, there is still an additional inferred resource of 1,810,000 tonnes in the new estimate. The oxide tailings resource is accessible on surface and contains significant gold and silver grades. The resource estimate used for the oxide tailing resource is outlined in the table above at a cut-off grade of 50 AgEq g/t.
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Note on Mineral Resources and Production
Mineral resources that are not mineral reserves do not have demonstrated economic viability. No current preliminary economic assessment, pre-feasibility study, or feasibility study has been carried out on the Company’s mineral resources. The Company has determined extraction and processing of its mineral resources at levels intended by management without undertaking any further formal studies.
Recommendations
The Technical Report contains the following recommendations for further work:
Database Management and Underground Sampling
It is recommended that tailings sampling and QA/QC data be added to the drillhole and channel sampling database. The underground sampling should be improved by making an advance drift along the footwall side of the Avino Vein system from which fan drilling at 40 metre intervals can be drilled to provide advanced and balanced sample coverage. The Company should develop the database for specific gravity data using drill cores, grab samples from controlled underground exposures, and large samples cut from the faces of the oxide tailings. QA/QC standards and blank submissions should be included in the master database, and bismuth (which is a significant deleterious penalty element) should be assayed at the same rate as copper to provide detailed information for mine planning.
Resource Estimation
An internal capacity to perform mineral resource estimation using geostatistical methods should be developed.
Exploration for the Western Extension of the Avino Vein
The known portion of the Avino Vein system west of San Luis terminations on a post-mineralization fault, and it is recommended that the extension to the system be investigated.
Long-Term Mine Planning
It is recommended that the Company prepare a long-term mine plan based on the resource estimates.
Metallurgical Studies
It is recommended that the Company further optimize its processing conditions, including metallurgical tests, to improve metallurgical performances for the mill feeds.
Oxide and Sulphide Tailings
Further tests are recommended to evaluate the metallurgical performances of the tailing samples, including the sulphide tailings samples. The test work should include: head characterization and mineralogical determination; leaching condition optimization, leaching retention time, agglomeration binding material types and dosages; determination of the effect of the particle size distribution on metal extraction and agglomeration; further confirmation of the effect of flotation pre-concentration on improving metal recovery; residual cyanide management tests, and further evaluations to compare heap leach vs. tank leach methods. The potential for handling sulphide tailings as a mineralized material, rather than waste material, should be investigated based on appropriate metallurgical tests, and optimization of the mine plan for the oxide tailings should be conducted.
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Environmental
Government agencies should be consulted prior to the permitting process to determine if current permits for the San Gonzalo Mine can be revised for an oxide tailings project. Permitting costs and the cost of expropriation of agricultural land for the leach pad, and the cost of water which would have to be redirected to the heap leach project, should be investigated, and the cost for monitoring environmental effects post-mine closure needs to be estimated in a detailed study.
Qualified Person(s)
The Qualified Persons as defined by NI 43-101, who supervised and are responsible for the Technical Report, and have reviewed the scientific, technical and financial content of this Annual Report, are Hassan Ghaffari, MASc., P.Eng. and Jianhui Huang, PhD., P.Eng., all of Tetra Tech Canada Inc., and Michael O’Brien P.Geo., Pr.Sci.Nat., Communications Corp. and each of whom is independent of Avino, as defined by Section 1.5 of NI 43-101.
San Gonzalo Mine – Resource Depletion
The mineral resource estimate at San Gonzalo factors in depletion from ongoing mining activities up to the effective date of October 31, 2020. As at December 31, 2019, management had determined that the economic life of the San Gonzalo Mine was Nil, and had stopped the processing of mineralized ore.
Avino Mine – Resource Depletion
The mineral resource estimate at Avino factors in depletion from ongoing mining activities up to the effective date of October 31, 2020.
Exploration - Avino Vein
Early Drilling (Prior to Mine Closure), 1968 to 2001
Between 1968 and 2001, at least 25 diamond drill holes, ranging in length from 132 to 575 m, are reported to have been drilled from surface into the Avino vein. Included in this total are 10 holes that were drilled by Selco in 1970 when they were re-habilitating some of the old underground workings to provide access for sampling. No further information on these drill holes was available to Tetra Tech and they are not included in the resource estimate for the Avino vein.
Oxide Tailings, 1990 to 1991
Between November 10 and December 5, 1990, and March 8 and May 30, 1991, Avino completed six trenches and 28 vertical drill holes in the tailings along 7 fences at a spacing of roughly 50 m by 50 m (Benitez Sanchez 1991). Drilling was completed transversely to the drainage pattern of the tailings. Cut at 1 m vertical increments, 461 samples were assayed for silver and gold at the mine assay lab and occasional moisture contents were reported. Assay results from these drill holes have been previously reported (Tetra Tech 2013).
Recent Drilling (Post Mine Closure), 2001 to Present
A total of 156 surface and underground drill holes have been completed on the Avino and San Gonzalo veins, totalling 35,846.5 m. Additional exploration holes have been drilled elsewhere on the Property, but those drilling results are not considered material. Most holes were surveyed down hole using a Tropari single-shot magnetic instrument. Of those holes for which down hole surveys were completed, the majority contain three or fewer measurements, typically at the collar and near the end of hole, and sometimes part-way down the hole. Many holes were not surveyed to within 10 m of the end of the hole.
Geophysical Surveys: Induced Polarization (IP)
In December 2006, Avino conducted an 80 km line deep penetrating IP survey at the property. IP geophysics helps identify drill targets. The IP survey was completed in 2007. Avino did follow-up soil geochemical, satellite imagery and other surveys to better define targets in the covered areas.
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Avino Vein (including ET Zone) and Nearby Veins
Since 2001, Avino has drilled 34 holes below Level 12, where mining ceased, for a total of 11,523.2 m. Drilling has targeted the ET Zone in particular. There were 5 holes completed in 2006 (2,166.85 m), 12 holes in 2007 (3,906.5 m), 8 holes in 2008 (2,186.7 m), and 9 holes in 2012 (3,263.15 m).
In September 2016, Avino began an exploration diamond drilling program between the San Luis Mine, which was last mined in the 1990’s, and the ET Mine, which is the area of current production; both areas are part of the Avino Mine. The area between the two mines is approximately 300 metres long and 220 metres deep and was recently the subject of a geological review where it was determined that the main Avino vein showed economically viable values, was open at depth and was largely underexplored. The 22-hole program, comprising approximately 3,374 metres, was extended from the original 18-hole program to fully evaluate the tonnage and the grade of the new area of the Avino Vein System and was completed in August 2017. The drill results support the continuation of the extensive Avino vein system. This new area is close to surface and accessible from the existing Avino Mine underground workings.
Additional drilling around the Avino Vein in 2017 and 2018 was focused on the El Chirumbo and San Juventino areas. The historic El Chirumbo area is located at the east end of Avino vein and was previously mined prior to 1940 and is characterized by gold rich mineralization in narrow veins. In 2017 and 2018, 10 diamond drill holes were completed totalling approximately 2,240 metres. An additional five holes totalling 1,300 metres were drilled at the San Juventino area which is located where the Avino-San Juventino and Footwall Breccia intersect north of the main Avino Vein system.
During 2019 a sampling campaign comprising 52 recent and historic holes that were previously drilled in the hanging-wall of the Avino vein stockwork system located on the Avino property. The relogging and sampling by the mine geology team of intervals previously regarded as not of economic interest has revealed extensive Hanging-wall Breccia (“HWB”) material with significant and consistent metal grades and wide vein widths. The HWB material has not yet been exploited and is close to the existing development levels 6 and 9 where services such as compressed air, water and electricity can be accessed swiftly if mineability is confirmed. At the time of the drilling, the main Avino vein structure was the target and the potential of the HWB was unknown, therefore the spacing in the vein intercepts which were recently sampled was is 30 to 70 metres apart.
Since the Avino deposit strikes approximately east-west and dips at 60° to 70° to the south, holes are generally oriented from south to north at various bearings and dip angles in order to intersect the structure at a target depth. Holes were drilled using Avino’s Longyear 44 core rig at thin wall NQ diameter.
San Gonzalo and Nearby Veins
At San Gonzalo, Avino drilled 40 holes in 2007 (9,222.9 m), 6 in 2008 (1,782.65 m), 18 in 2011 (3,618.57 m), 15 in 2014 (3,631.93 m), and 25 in 2015 (3,197.60m) for a total of 104 drill holes and 21,453.65 m. All holes were of thin wall NQ size core diameter and were completed using Avino’s Longyear 44 core rig with the exception of 6 underground holes in 2014 and 14 in 2015. Additional holes also explored the nearby Guadalupe, San Juventino, San Lucerno, Mercedes, San Jorge, and Yolanda veins.
The collars for 2007 and 2008 drill holes were marked by concrete monuments and the collars have been surveyed. A check of the coordinates with a handheld global positioning system (GPS) revealed a possible 10 m constant error which may simply mean that all of the mine coordinates are not precisely Universal Transverse Mercator (UTM). However, this could also indicate the existence of a small surveying error on the Property.
In 2011, 69 holes totalling 9,862.97 m were drilled principally in the following locations: San Gonzalo (18 holes, as above), Aguila Mexicana (2 holes), Guadalupe (25 holes), La Potosina (9 holes), Mercedes (1 hole), San Jorge (3 holes), San Juventino (3 holes), San Lucero (5 holes), Tucero (1 hole), and Yolanda (2 holes). With the exception of the San Gonzalo vein, all of these locations are considered targets for further exploration.
In 2014, Avino undertook a 15 hole (3,631.93 m) surface and underground definition drill program to test the San Gonzalo vein at depth. In April 2014, a 70 meter cross cut was completed on level 6, and the underground drill program started on May 2. Three holes were drilled from the cross cut (SG-14-01 through SG-14-03).
Surface drill holes SG-14-04 through SG-14-10 were drilled between June and October 2014. Hole SG-14-11 was an underground hole drilled in October 2014 from the end of the San Gonzalo level 6 crosscut (same location as SG-14-01 through SG-14-03).
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Holes SG-14-12 and SG-14-13 were drilled during October and November 2014 from the end of a crosscut on level 7. A sudden inflow of water on November 17, 2014 caused hole SG-14-13 to be terminated. Surface drilling later resumed and holes SG-14-14 and SG-14-15 were drilled by December 31, 2014.
In 2015, the Company continued its definition drill program intended to define the boundaries of the San Gonzalo structure. In total, 25 holes were completed totaling 3,197.60m metres. From January 2015, through the end of April, 19 holes were drilled of which 5 were from surface and 14 were underground holes (SG-15-1 through SG-15-16). Drilling resumed in September 2015 with Hole CH-07-01 which was the deepening of a hole drilled in 2007 on the Chihuahua vein, which is an extension of the San Gonzalo structure. Drilling then resumed at San Gonzalo to test the southeast extension of the structure; drilling for the year concluded in November with the completion of hole SG-15-24. No holes were drilled at San Gonzalo in 2016.
In 2017 and 2018, eleven holes were drilled at the Guadalupe area totalling 2,020 metres. The Guadalupe area is located on surface at the west end of the San Gonzalo mine.
In 2020, there were no current exploration program and active mining has ceased at the San Gonzalo mine.
Reclamation
The Company has mine closure and reclamation plans for the Avino and San Gonzalo Mines and has estimated the undiscounted value of reclamation at approximately $1.2 million for the Avino Mine and approximately $0.1 million for the San Gonzalo Mine as at December 31, 2021.
As per Federal Mexican regulations (LGEEPA), both the SEMARNAT and PROFEPA ministries require Avino to present in its first semi-annual report a “General Plan to Remediate the Site” including dates, activities, techniques, and costs that will ensure restoration of affected areas, considering complete reforestation of impacted sites, removal of foundations and infrastructure that are no longer useful, roads that no longer have any use, removal and proper disposal of all rubbish, closing off adits that are no longer needed and restoration of the tailings facility at the end of its operational life. Avino will also need to present a reforestation program for the entire surface area affected during mining activities. This program will include caveats to safeguard flora and fauna.
Eagle Property – Not Active
Ownership. The wholly-owned Eagle property was acquired in 2003 when Avino purchased a 100% interest in 14 quartz leases by issuing 200,000 common shares at a price of C$0.50 per share for total consideration of C$100,000. The property was written down to a nominal value of $1 in fiscal 2006 and currently has a deferred value of $1.
Property Description and Location. The 516 ha property is located in the Yukon roughly 38 kilometres northeast of Mayo and 350 kilometres due north of the capital of Whitehorse. It is currently in its Phase I stage of exploration. The property is accessed by a road. Whitehorse, the nearest major city, is approximately 380 kilometres to the south of the village of Mayo. The village of Mayo is 60 kilometers to the southeast of Keno City. The Eagle property lies on the south-east facing slope of Galena Hill where the elevations range from about 1350 m to 1540 m. Permafrost, while thin to non-existent in places, is reported to be found under accumulations of surface rubble left from glaciation.
Proposed Work Program. No further work is proposed by Avino at this time.
Olympic-Kelvin Property – Not Active
Ownership. The Olympic-Kelvin property is wholly-owned by the Company and was acquired in 1987 when it acquired a 100% interest in 20 reverted Crown-granted mineral claims, one located mineral claim and three fractions located in the Lillooet Mining Division of British Columbia. The Company will maintain these claims in good standing and may decide to commence exploration again on the Olympic-Kelvin Property.
Property Description and Location. The Olympic-Kelvin property totals approximately 662.5 hectares and is located on the south side of Carpenter Lake, five kilometers northeast of Gold Bridge in the Lillooet Mining Division, British Columbia.
The Olympic-Kelvin property is easily accessible by the all-weather, publicly maintained, Gray Rock logging road which runs northeast from Gold Bridge. Access on the Olympic-Kelvin property is possible on a number of cat trails built by the Company and previous operators.
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The Olympic-Kelvin property covers rocks of the Pioneer Formation and Bridge River Terrane. These rocks are cut by northwest trending regional scale structures sub-parallel to the Ferguson and Cadwallader Structures. The structures on the Olympic-Kelvin property are roughly the same distance from the Upper Cretaceous-Tertiary granitic Bendor Intrusions as the Bralorne/Pioneer mines. A similar flexure is present in the northwest trending structures on the Olympic-Kelvin property. These structures on the property are mineralized with silver and gold and have received considerable past work, including at least four adits.
Proposed Work Program. No further work is proposed at this time.
Minto Property – Not Active
Ownership. The Minto Property is wholly-owned by the Company and was acquired in early 1985 when it acquired its 100% interest in eight Crown granted mineral claims, eight reverted Crown granted mineral claims and one located mineral claim, situated in the Lillooet Mining Division of British Columbia. During the January 31, 2007 year end these mineral claims were converted into one claim encompassing all of the original claims The Company will maintain these claims in good standing and may decide to commence exploration again on the Minto Property.
Property Description and Location. The Minto Property is situated about ten kilometers east of Gold Bridge in the Bridge River gold district of British Columbia and adjoins the Olympic-Kelvin Property. The property covers approximately 204 hectares. The claims occupy the lake bed and north side of Carpenter Lake. Access from Gold Bridge is made via an all-weather gravel road which skirts the north shore of Carpenter Lake.
Gold Bridge can be reached from Vancouver via Hope and Lillooet, a distance of 445 kilometers, or via Pemberton using the four-wheel-drive Hurley Pass route, a distance of 225 km.
The terrain is rugged, typical of the eastern margin of the Coast Range Mountains. The claim group ranges in elevation from 650 meters on Carpenter Lake to a maximum of 1020 meters.
The climate of the Bridge River District is transitional between humid coastal belt and more arid interior plateau. Annual precipitation is modest with a significant proportion falling as snow in the winter. Summers tend to be warm to hot depending on the altitude, and winters are moderately cold.
Proposed Work Program. No further work is proposed at this time.
El Laberinto Property – Not Active
Ownership. Avino is, directly or through its wholly-owned Mexican subsidiary Compañía Minera Mexicana de Avino, S.A. de C.V., a Mexican corporation, the sole legal and beneficial owner of 100% of the rights, title and interest in and to the El Laberinto Property located in Durango State, Mexico.
Property Description and Location. The El Laberinto property is situated 60 kilometres NE of Durango, Mexico and 25 kilometres west of Avino’s main mine. It occurs in the Sierra La Silla (hills) which form part of a large volcanic caldera which also contains Avino’s main holdings. The Sierra La Silla area contains many silver, gold, lead, zinc and copper veins similar to those at Avino which are also situated in the lower volcanic Andesite sequence.
History. El Laberinto is a small property today and is a remnant of a much larger land package in the area once controlled by Avino.
During 1995 Avino mapped the La Silla area and sampled the principal veins.
Avino drove an adit on the Veta Grande (“Big Vein”) in late 1995. Values of silver and gold were sub-economic. The adit was stopped at a length of approximately 300 meters before it reached the main shoot described in the 1995 report. Three holes were drilled below the adit, for which assays are unavailable.
Avino does not consider that the Big Vein has been adequately explored to date. Although the adit showed low values, it did not reach the principal shoot and was likely too high on the vein structure.
In August 2020, the Company optioned “El Laberinto Property” and “Ana Maria Property” to Silver Wolf Exploration Ltd. (formerly, Gray Rock Resources Ltd.). Please see “Option of Ana Maria and El Laberinto Properties” below.
Proposed Work Program. No further work is proposed at this time.
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Other Properties (Durango, Mexico) – Not Active
Avino also has mineral rights for three other properties in the Durango State of Mexico, described below:
The Ana Maria property, located near Gomez Palacio, consists of 9 adjoining concessions and covers approximately 2,545 hectares. Avino assembled the land package in 2001 and 2002. In August 2020, the Company optioned “El Laberinto Property” and “Ana Maria Property” to Silver Wolf Exploration Ltd. (formerly, Gray Rock Resources Ltd.). Please see “Option of Ana Maria and El Laberinto Properties” below.
The El Hueco property, located near Silver Standard’s Pitarilla mine close to the town of Santiago Papasquiaro is comprised of 5 adjoining concessions and covers approximately 1,312.42 hectares. Avino assembled the land package between 1999 and 2005.
The La Potosina, El Fuerte, and Aranjuez concessions, used to be contiguous with the Avino Mine property where the bulk of the work has been taking place, but claims in between these mining concessions and the Avino Mine property have been dropped.
Avino considers these properties to be of merit, however, has no current plans for exploration and evaluation at this time.
Option of Ana Maria and El Laberinto Properties
By an option agreement dated August 12, 2020 (the “Option Agreement”), Avino has optioned to Silver Wolf Exploration Ltd. (“Silver Wolf”; formerly, Gray Rock Resources Ltd.), or its assign, the right to purchase the Ana Maria and El Laberinto Properties, consisting of ten (10) mining concessions comprising a total area pf 2,640.7 ha, located in the State of Durango, Mexico. Silver Wolf is a reporting issuer in British Columbia and Alberta, whose common shares are listed for trading on the TSX Venture Exchange (“TSXV”).
Under the terms of the Option Agreement, to exercise the option to purchase the properties, Silver Wolf must:
| (a) | Issue to Avino share purchase warrants to purchase up to 300,000 common shares at an exercise price of C$0.20 per share, exercisable for a period of three (3) years from the date of acceptance of the Option Agreement by the TSXV (the “Approval Date”); |
|
|
|
| (b) | Issue to Avino C$50,000 worth of Silver Wolf’s common shares at the volume weighted average price of such shares for the ten (10) trading days immediately following the Approval Date, subject to a minimum of C$0.20 per share (or a maximum of 250,000 shares); |
|
|
|
| (c) | Pay C$50,000 in cash to Avino, or issue to Avino C$50,000 worth of Silver Wolf’s common shares at the volume weighted average price of such shares for the ten (10) trading days immediately following the Approval Date, subject to a minimum of C$0.20 per share (or a maximum of 250,000 shares) on or before the first anniversary of the Approval Date; |
|
|
|
| (d) | Pay C$100,000 in cash to Avino, or issue to Avino C$100,000 worth of Silver Wolf’s common shares at the volume weighted average price of such shares for the ten (10) trading days immediately following the Approval Date, subject to a minimum of C$0.20 per share (or a maximum of 500,000 shares) on or before the second anniversary of the Approval Date; |
|
|
|
| (e) | Pay C$200,000 in cash to Avino, or issue to Avino C$200,000 worth of Silver Wolf’s common shares at the volume weighted average price of such shares for the ten (10) trading days immediately following the Approval Date, subject to a minimum of C$0.20 per share (or a maximum of 1,000,000 shares) on or before the third anniversary of the Approval Date; |
|
|
|
| (f) | Pay C$200,000 in cash to Avino, or issue to Avino C$200,000 worth of Silver Wolf’s common shares at the volume weighted average price of such shares for the ten (10) trading days immediately following the Approval Date, subject to a minimum of C$0.20 per share (or a maximum of 1,000,000 shares) on or before the fourth anniversary of the Approval Date; and |
|
|
|
| (g) | Assume liability for and pay the semi-annual assessment fees to the Mexican government to maintain the properties in good standing during the term of the Option Agreement. |
| 44 |
| Table of Contents |
Further, Silver Wolf must incur a total of C$750,000 in exploration expenditures on the properties, as follows:
| (a) | C$50,000 on or before the first anniversary of the Approval Date; |
|
|
|
| (b) | A further C$100,000 on or before the second anniversary of the Approval Date; and |
|
|
|
| (c) | A further C$600,000 on or before the fourth anniversary of the Approval Date. |
There has been no material exploration work conducted on the Ana Maria or El Laberinto Properties by Avino, and these properties are not material to its current operations in Mexico.
There is one director in common to both Avino and Silver Wolf, namely, David Wolfin, who is also the control person of Silver Wolf. The two companies also share the same Chief Financial Officer and Corporate Secretary. Independent special committees of the boards of directors of each of the parties negotiated and recommended the transaction to their respective board of directors, and Mr. Wolfin abstained from voting thereon.
The Option Agreement was approved by the TSXV on March 11, 2021. On March 26, 2021 the Company was issued 131, 718 shares of Silver Wolf. On October 21, 2021 the Company exercised the share purchase warrants and received 300,000 shares of Silver Wolf.
Item 4A. Unresolved Staff Comments
None
Item 5. Operating and Financial Review and Prospects
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the information contained in the Company’s annual audited consolidated financial statements and the notes thereto for the years ended December 31, 2020, 2019 and 2018 included in this annual report on Form 20-F. Such discussion and analysis is based upon our annual audited consolidated financial statements prepared in accordance with International Financial Reporting Standards (‘‘IFRS’’) for the years ended December 31, 2021, 2020 and 2019.
A. Operating results
Information regarding the Company’s operating results for the years ended December 30, 2021, and 2020, is incorporated by reference to the Company’s Management’s Discussion and Analysis incorporated by reference to Exhibits 15.1 and 15.2.
Information regarding the Company’s liquidity and capital resources for the years ended December 31, 2021, and 2020, is incorporated by reference to the Company’s Management’s Discussion and Analysis incorporated by reference to Exhibits 15.1 and 15.2.
| 45 |
| Table of Contents |
Contractual obligations
As at December 31, 2021, the Company had the following contractual obligations:
|
| Payment due by period |
| |||||||||||||||||
|
| Total |
|
| 1 year |
|
| 1-3 Years |
|
| 3-5 Years |
|
| More than 5 years |
| |||||
Accounts payable and accrued liabilities |
| $ | 3,260,000 |
|
| $ | 3,260,000 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
Due to related parties |
|
| 163,000 |
|
|
| 163,000 |
|
|
| - |
|
|
| - |
|
|
| - |
|
Minimum rental and lease payments |
|
| 889,000 |
|
|
| 96,000 |
|
|
| 166,000 |
|
|
| 165,000 |
|
|
| 462,000 |
|
Deferred income tax liabilities |
|
| 1,781,000 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,781,000 |
|
Finance lease obligations |
|
| 1,152,000 |
|
|
| 438,000 |
|
|
| 575,000 |
|
|
| 139,000 |
|
|
| - |
|
Total |
| $ | 7,245,000 |
|
| $ | 3,957,000 |
|
| $ | 741,000 |
|
| $ | 304,000 |
|
| $ | 2,243,000 |
|
C. Research and development, patents and licenses, etc.
As the Company is a mining and exploration company with no research and development, the information required by this section is not applicable.
D. Trend information
As at the time of filing this Annual Report and as otherwise disclosed in this Annual Report, the Company is not aware of any specific trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on the Company’s net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition. However, it should be noted that future required capital expenditures at the Avino Mine would likely have positive and negative impact, respectively, on future cash flows after 2021. Many factors that are beyond the control of the Company can affect the Company’s operations, including, but not limited to, the price of minerals, the economy on a global scale, land and exploration permitting, and the appeal of investments in mining companies. The appeal of mining companies as investment alternatives could affect the liquidity of the Company and thus future exploration and evaluation, extracting and processing activities, and financial conditions of the Company. Other factors such as retaining qualified mining personnel and contractor availability and costs could also impact the Company’s operations.
E. Critical Accounting Estimates
Information regarding the Company’s critical accounting estimates is incorporated by reference to the Company’s Management’s Discussion and Analysis incorporated by reference to Exhibits 15.1 and 15.2.
Item 6. Directors, Senior Management and Employees
A. Directors and senior management
The following is a list of the Company’s directors and senior management as at December 31, 2021. The directors are elected for a term of one year at the annual meeting of shareholders. This year’s annual meeting will be held on June 21, 2022.
| 46 |
| Table of Contents |
Name and Present Position with the Company |
| Principal Occupation |
| Director/Officer Since |
Gary Robertson Director |
| Certified Financial Planner; Director and Chairman of Avino Silver Gold Mines Ltd.
|
| August 2005 |
|
|
|
|
|
David Wolfin Director/President/CEO |
| Director, President and CEO of Avino Silver Gold Mines Ltd., and Silver Wolf Exploration Ltd. (formerly, Gray Rock Resources Ltd.) |
| October 1995 |
|
|
|
|
|
Peter Bojtos Director |
| Professional Engineer and Director of Avino Silver Gold Mines Ltd.
|
| June 2018 |
|
|
|
|
|
Jasman Yee Director |
| Professional Engineer and Metallurgist |
| January 2011 |
|
|
|
|
|
Ronald Andrews Director |
| Director of Bonner Mall Partnership. Owner and operator of Andrews Orchards |
| May 2019 |
|
|
|
|
|
J.C. Rodríguez Chief Operating Officer |
| Geology Professional |
| December 2012 |
|
|
|
|
|
Jennifer Trevitt Corporate Secretary |
| Corporate Secretary of Avino Silver Gold Mines Ltd., and Silver Wolf Exploration (formerly, Gray Rock Resources Ltd.) |
| December 2021 |
|
|
|
|
|
Nathan Harte Chief Financial Officer |
| CPA, Chief Financial Officer of Avino Silver Gold Mines Ltd., and Silver Wolf Exploration Ltd. (formerly, Gray Rock Resources Ltd.) |
| November 2018 |
|
|
|
|
|
Peter Latta VP Technical Services |
| Professional Engineer, Director and President of Silver Wolf Exploration Ltd. |
| October 2020 |
B. Compensation
During the last completed fiscal year, the Company had four executive officers, namely, David Wolfin, Chief Executive Officer; Nathan Harte, Chief Financial Officer, J.C. Rodríguez, Chief Operating Officer and Peter Latta, VP Technical Services.
Compensation Discussion and Analysis
The executive compensation program is comprised of fixed and variable elements of compensation; base salary, discretionary bonus, and equity based incentive awards in the form of stock options and Restricted Share Units (“RSUs”) to its executive officers. The Company recognizes the need to provide a compensation package that will attract and retain qualified and experienced executives, as well as align the compensation level of each executive to that executive’s level of responsibility. The three components of the compensation package are included to enable the Company to meet different objectives.
The objectives of base salary are to recognize market pay and acknowledge the competencies and skills of individuals. The objective of discretionary bonuses (paid in the form of cash payments) is to add a variable component of compensation to recognize corporate and individual performances for executive officers and employees. The objectives of equity based incentive award are to align the interest of executive officers with that of Shareholders by encouraging equity ownership through awards of stock options and RSUs, to motivate executive and other key employees to contribute and increase in corporate performance and shareholder value, and to attract talented individuals and reward achievement of long-term financial and operating performance and focus on key activities and achievements critical to the ongoing success of the Company. Implementation of incentive stock options and RSUs plans and amendments thereto are the responsibility of the Company’s Compensation Committee.
The compensation of the executive officers is reviewed and recommended for Board approval by the Company’s Compensation Committee. Although the Board has not formally evaluated the risks associated with the Company’s compensation policies and practices, the Board has no reason to believe that any risks that arise from the Company’s compensation policies and practices are reasonably likely to have a material impact on the Company.
| 47 |
| Table of Contents |
The members of the Compensation Committee are Peter Bojtos (Chair), Ronald Andrews, and Gary Robertson, all of whom are independent.
The general objectives of the Company’s compensation strategy are to:
| (a) | compensate management in a manner that encourages and rewards a high level of performance and outstanding results with a view to increasing long-term shareholder value; |
|
|
|
| (b) | align management’s interests with the long-term interests of shareholders; |
|
|
|
| (c) | provide a compensation package that is commensurate with other comparable companies to enable the Company to attract and retain talent; and |
|
|
|
| (d) | ensure that the total compensation package is designed in a manner that takes into account the Company’s present stage of exploration, evaluation, extraction, and processing activities and its available financial resources. The Company’s compensation packages have been designed to provide a blend of a non-cash stock option component and a reasonable salary. In addition, extraordinary efforts which enhance shareholder value are rewarded with cash bonuses. |
Other than discussed above, the Company has no other forms of compensation. Payments may be made from time to time to individuals or companies that they control for the provision of consulting services which may be deemed a form of compensation. Such consulting services are paid for by the Company at competitive industry rates for work of a similar nature by reputable arm’s length services providers.
Actual compensation will vary based on the performance of the executives relative to the achievement of goals and the price of the Company’s securities.
Compensation Element | Description | Compensation Objectives |
Annual Base Salary | Salary is market-competitive, fixed level of compensation | Retain qualified leaders, motivate strong business performance. |
Incentive Bonuses | Discretionary cash payment | Reward individual performance in achieving corporate goals |
Equity Based Incentive Awards | Equity-based incentive awards are made in the form of incentive stock options and Restricted Share Units (“RSU”). The amount of each grant will be dependent on individual and corporate performance. | Reward long-term financial and operating performance and align interests of key employees with those of shareholders |
The Company relies on the discretion and judgment of the directors in establishing and amending contracts for all forms of compensation, including stock options and RSUs to be granted to the CEO and the directors, and for reviewing the CEO’s recommendations respecting compensation of the other officers of the Company, to ensure such arrangements reflect the responsibilities and risks associated with each position. There is no formal process using objectives, criteria, or analysis, for determining compensation. However, the Compensation Committee considers a number of key factors (including cash cost per ounce of silver equivalent, all-in sustaining cost per ounce of silver equivalent, operating margin and net income, share price relative to a competitive set of silver producers, safety and environmental issues, changes in amounts and categories of reserves and resources, total silver equivalent ounces produced and sold, investor and community relations, exploration results, financings, etc.), and considers these in comparison to other similar silver producers (that have comparable market capitalizations, revenues, and total assets). When determining the compensation of its officers, the Compensation Committee and the Board are guided by the general objectives of the Company’s compensation strategy as set out above.
| 48 |
| Table of Contents |
Summary Compensation Table
The following table sets forth particulars concerning the compensation paid or accrued for services rendered to the Company in all capacities for the year ended December 31, 2021 of the Company to its executive officers:
Name and principal position |
| Year |
| Salary ($) |
| Share-based awards ($)(1) |
| Option-based awards ($)(2) |
| Non-equity incentive plan compensation ($)(3) |
| Pension value ($)(4) |
| All other compensation ($)(5) |
| Total compensation ($) |
David Wolfin(6) (8) President, CEO and Director |
| 2021 |
| 239,292 |
| 303,721 |
| 66,312 |
| NIL |
| NIL |
| NIL |
| 609,325 |
| 2020 |
| 223,680 |
| 361,117 |
| 137,090 |
| NIL |
| NIL |
| NIL |
| 721,887 | |
| 2019 |
| 226,108 |
| 336,177 |
| NIL |
| NIL |
| NIL |
| NIL |
| 562,285 | |
Nathan Harte CFO(8) |
| 2021 |
| 121,279 |
| 103,187 |
| 33,156 |
| NIL |
| NIL |
| NIL |
| 257,622 |
| 2020 |
| 73,557 |
| 68,086 |
| 73,338 |
| NIL |
| NIL |
| NIL |
| 214,981 | |
| 2019 |
| 58,865 |
| 21,396 |
| 19,429 |
| NIL |
| NIL |
| NIL |
| 99,690 | |
J.C. Rodríguez COO(7) |
| 2021 |
| 211,679 |
| 174,069 |
| 44,208 |
| NIL |
| NIL |
| NIL |
| 429,956 |
| 2020 |
| 215,022 |
| 172,225 |
| 91,394 |
| NIL |
| NIL |
| NIL |
| 478,641 | |
| 2019 |
| 202,441 |
| 117,866 |
| NIL |
| NIL |
| NIL |
| NIL |
| 320,307 | |
Peter Latta VP-Technical Services |
| 2021 |
| 122,826 |
| 69,147 |
| 22,104 |
| NIL |
| NIL |
| NIL |
| 214,077 |
| 2020 |
| 111,840 |
| 44,724 |
| 50,489 |
| NIL |
| NIL |
| NIL |
| 207,053 |
(1) | The “2018 RSU Plan was approved by the shareholders on May 24, 2018, and the maximum number of RSU shares issuable under this Plan shall not, together with all other security-based compensation arrangements of the Corporation exceed 10% of the issued and outstanding Common Shares as at the date of such Grant on a non-diluted basis. As of December 31, 2021, No RSUs were granted under the 2018 RSU Plan to officers, directors, employees and consultants and 1,330,167 were vested and 104,356 were cancelled. The value of the RSUs is based on the closing price of the Common Shares on the vesting date. The RSUs will vest one-third annually over three years, and the amount above reflects the accrual for unvested share-based awards issued in the current and previous years, as at December 31, 2021. The closing market price on august 4, 2021 was C$1.26 per common share, the closing market price on August 28, 2021 was C$1.29 per common share, and the closing market price on August 21, 2021 was C$1.18 per common share. |
|
|
(2) | The methodology used to calculate the grant-date fair value is based on the Black-Scholes Option Pricing Model. During the year ended December 31, 2021, new option-based awards were granted to officers, directors, employees, and consultants. The fair value was estimated using the following weighted-average assumptions: risk-free interest rate of 0.30%, expected dividend yield of 0%, expected option life of 5 years, and expected share price volatility of 66.09%. |
|
|
(3) | The Company does not have a non-equity incentive plan. |
|
|
(4) | The Company does not have any pension plans. |
|
|
(5) | Discretionary cash payment of incentive bonuses. |
|
|
(6) | Mr. David Wolfin was appointed CEO on June 24, 2010. Mr. Wolfin’s salary was paid to Intermark Capital Corp., a private BC corporation controlled by Mr. Wolfin. |
|
|
(7) | Mr. Rodríguez receives his salary in Mexican Pesos (“MXP”). For 2021, Mr. Rodriguez’ salary of MXP 4,624,119, was converted into US dollars by applying an exchange rate of 1MXP = US$0.0465. |
|
|
(8) | All compensation to Mr. David Wolfin, Mr. Nathan Harte and Mr. Peter Latta are paid in Canadian dollars and are converted into US dollars by applying an exchange rate of US$1.00 = C$1.2537 for 2021, US$1.00 = C$1.3412 for 2020, and US$1.00 = C$1.3268 for 2019, based on the average exchange rate for the year quoted by the Bank of Canada. |
|
|
(9) | Mr. Peter Latta was appointed VP- Technical Services in 2020. |
· | Annual Base Salary |
Base Salary for the executive officers is determined by the Board based upon the recommendation of the Compensation Committee and its recommendations are reached primarily by comparison of the remuneration paid by other reporting issuers similar in size and within the industry and review of other publicly available information on remuneration that the Compensation Committee feels is suitable.
The Annual Base Salary paid to the executive officers is, for the purpose of establishing appropriate increases, reviewed annually by the Board upon the recommendation of the Compensation Committee as part of the annual review of executive officers. The decision on whether to grant an increase to the executive’s base salary and the amount of any such increase is in the sole discretion of the Board and Compensation Committee.
· | Non-Equity Incentive Plan Compensation |
One of the three components of the Company’s compensation package is a discretionary annual cash bonus, paid to recognize individual performance in attaining corporate goals and objectives. The Company does not have a long-term incentive plan.
· | Equity-Based Incentive Awards |
Equity-based incentive awards are in the form of the grant of incentive stock options and RSUs. The objective of the equity-based incentive award is to reward executive officers, employees, and directors’ individual performance at the discretion of the Board upon the recommendation of the Compensation Committee.
| 49 |
| Table of Contents |
The Company currently maintains a Stock Option and an RSU Plan (the “Plans”), under which stock options have been granted and may be granted to purchase a number equal to up to 10% of the Company’s issued capital from time to time. The RSU Plan (the “2018 RSU Plan”) was approved by the shareholders on May 24, 2018 and the unallocated entitlements were approved by shareholders on May 27, 2021. The maximum number of RSU shares issuable under this Plan shall not, together with all other security-based compensation arrangements of the Corporation exceed 10% of the issued and outstanding Common Shares as at the date of such Grant on a non-diluted basis. As of December 31, 2021, a total of 4,373,500 RSUs were granted under the 2018 RSU Plan to officers, directors, employees and consultants and 1,330,167 were vested and 104,356 were cancelled. The value of the RSUs is based on the closing price of the Common Shares on the vesting date. The RSUs will vest one-third annually over three years, until fully vested from the date of the awards, and provided that these designated persons are continuously employed with or providing services to Avino.
All Plans are administered by the Compensation Committee. The process the Company uses to grant equity based incentive awards is upon the recommendations of the Compensation Committee.
The role of the Compensation Committee is to recommend to the Board the compensation of the Company’s directors and the executive officers which the Committee feels is suitable. All previous grants of equity-based incentive awards are taken into account when considering new grants.
· | Outstanding share-based awards and option-based awards |
The following table sets forth the options and RSUs granted to the executive officers to purchase or acquire securities of the Company outstanding at December 31, 2021:
|
| Option-based Awards |
| Share-based Awards | ||||||||||||
Name |
| Number of securities underlying unexercised options (#) |
| Option exercise price (C$)(3) |
| Option expiration date
|
| Value of unexercised in-the-money options ($)(1)(4) |
| Share grant date |
| Number of shares or units of shares that have not vested (#)(2) |
| Market or payout value of share-based awards that have not vested ($)(2)(4) |
| Market or payout value of vested share-based awards not paid out or distributed ($)(2) (4) |
David Wolfin, CEO, President and Director |
| 250,000 |
| $1.98 |
| Sept. 20, 2022 |
| Nil |
| Aug 21, 2019 |
| 220,000 |
| 138,630 |
| Nil |
| 300,000 |
| 1.64 |
| Aug 4, 2025 |
| Nil |
| Aug 4, 2020 |
| 200,000 |
| 261,626 |
| Nil | |
Nathan Harte, CFO |
| 25,000 |
| $1.98 |
| Sept 20, 2022 |
| Nil |
| Aug 21, 2019 |
| 20,000 |
| 12,603 |
| Nil |
| 48,000 |
| $0.79 |
| Aug 21, 2024 |
| 12,252 |
| Aug 4, 2020 |
| 100,000 |
| 130,813 |
| Nil | |
| 150,000 |
| $1.64 |
| Aug 4, 2025 |
| Nil |
|
|
|
|
|
|
|
| |
J.C. Rodríguez COO
|
| 125,000 |
| $1.98 |
| Sept 20, 2022 |
| Nil |
| Aug 21, 2019 |
| 100,000 |
| 63,013 |
| Nil |
| 200,000 |
| $1.64 |
| Aug 4, 2025 |
| Nil |
| Aug 4, 2020 |
| 133,334 |
| 174,418 |
| Nil | |
Peter Latta VP-Technical Services |
| 100,000 |
| $1.64 |
| Aug 4, 2025 |
| Nil |
| Aug 21, 2019 |
| 10,000 |
| 6,301 |
| Nil |
|
|
|
|
|
|
|
|
| Aug 4, 2020 |
| 68,000 |
| 88,953 |
| Nil | |
(1) | In-the-Money Options are the difference between the market value of the underlying securities at December 31, 2021 and the exercise price of the option. The closing Toronto Stock Exchange share price for the Company’s common shares as at December 31, 2021 was C$1.11 per common share. |
|
|
(2) | Share Based Awards are in the form of RSU Plan. The 2018 RSU Plan (the “2018 RSU Plan”) was approved by the shareholders on May 24, 2018, and the maximum number of RSU shares issuable under this Plan shall not, together with all other security-based compensation arrangements of the Corporation exceed 10% of the issued and outstanding Common Shares as at the date of such Grant on a non-diluted basis. As of December 31, 2021, No RSUs were granted under the 2018 RSU Plan to officers, directors, employees and consultants and 1,330,167 were vested and 104,356 were cancelled. The value of the RSUs is based on the closing price of the Common Shares on the vesting date. The RSUs will vest one-third annually over three years, and the amount above reflects the accrual for unvested share-based awards issued in the current and previous years, as at December 31, 2021. The closing market price on August 4, 2021 was C$1.26 per common share, the closing market price on August 28, 2021 was C$1.29 per common share, and the closing market price on August 21, 2021 was C$1.18 per common share. |
|
|
(3) | The option exercise price is quoted in Canadian dollars as they relate specifically to the Canadian dollar share price as quoted on the Toronto Stock Exchange. |
|
|
(4) | The Awards are calculated in Canadian dollars and are converted into US dollars by applying an exchange rate of US$1.00 = C$1.2537, which represents the average exchange rate for the year 2021 quoted by the Bank of Canada. |
| 50 |
| Table of Contents |
Incentive plan awards – value vested or earned during the year
An “incentive plan” is any plan providing compensation that depends on achieving certain performance goals or similar conditions within a specific period. An “incentive plan award” means compensation awarded, earned, paid or payable under an incentive plan.
The following table sets forth the value vested or earned during the year of option-based awards, share-based awards and non-equity incentive plan compensation paid to executive officers during the most recently completed financial year ended December 31, 2021:
Name |
| Option-based awards – Value vested during the year ($) (1)(3) |
|
| Share-based awards – Value vested during the year ($) (2)(3) |
|
| Non-equity incentive plan compensation – Value earned during the year ($)(3) | |||
David Wolfin President, CEO and Director |
|
| 11,366 |
|
|
| 446,478 |
|
| Nil | |
Nathan Harte, CFO |
|
| 5,683 |
|
|
| 77,822 |
|
| Nil | |
J.C. Rodríguez COO |
|
| 7,578 |
|
|
| 204,339 |
|
| Nil | |
Peter Latta VP-Technical Services |
|
| 3,789 |
|
|
| 52,329 |
|
| Nil | |
| (1) | The aggregate dollar value that would have been realized if the options granted during the year had been exercised on the vesting date. |
|
|
|
| (2) | The RSU Vesting prices were C$1.26, C$1.29, and C$1.18 which represent the share prices on August 4, 2021, August 28, 2021, and August 21, 2021, the dates on which the RSUs vested. |
|
|
|
| (3) | The Awards are calculated in Canadian dollars and are converted into US dollars by applying an exchange rate of US$1.00 = C$ which represents the average exchange rate for the year 2021 as quoted by the Bank of Canada. |
Pension Plan Benefits
No pension plan or retirement benefit plans have been instituted by the Company and none are proposed at this time.
Use of Financial Instruments
The Company does not have in place policies which restrict the ability of directors or executive officers to purchase financial instruments, such as prepaid variable forward contracts, equity swaps, collars, or units of exchange funds, that are designed to hedge or offset a decrease in market value of equity securities granted as compensation or held, directly or indirectly, by a director or executive officers. However, any such purchases would be subject to applicable insider reporting requirements.
Termination and Change of Control Benefits
On January 1, 2016, the Company entered into a consulting agreement with Intermark Capital Corporation, a company owned by David Wolfin, and on March 23, 2016, the Company further amended the consulting agreement which contains certain provisions in connection with termination of employment or change of control. The consulting agreement was renewed for a period of three years on January 1, 2022, with the same terms and conditions.
The Intermark Capital Corporation Agreement can be terminated at any time as follows:
| (a) | by Intermark Capital Corporation electing to give the Company not less than 3 months prior notice of such termination; |
|
|
|
| (b) | by the Company electing to give Intermark Capital Corporation three months prior notice of such termination along with a termination payment equal to the annual Consulting Fee; and |
|
|
|
| (c) | by Intermark Capital Corporation electing to give the Company notice, in the event that there occurs a Change of Control (as defined below) within six (6) months of the effective date of such Change of Control, and if Intermark Capital Corporation so elects to terminate the Agreement, then Intermark Capital Corporation will be immediately entitled to a termination payment equal to C$2 million. |
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On May 30, 2019, the Company entered into a Change of Control Agreement with Nathan Harte, a named executive officer of the Company. If a Change of Control occurs, and Nathan Harte’s employment is terminated by the Company for any reason, except excluding a termination for just cause, within six (6) months of the date of the Change of Control, or Nathan Harte resigns from his employment for Good Reason during such six (6) month period, then Nathan Harte shall be entitled to receive from the Company an amount equal to Nathan Harte’s current monthly base salary multiplied by twelve (12) months which Nathan Harte will be paid his salary, accrued bonuses, if any, and vacation earned and other amounts due to him up to the termination date; which amount is to be paid in a lump sum within 10 business days of the Change in Control termination date.
On May 30, 2019, the Company entered into a Change of Control Agreement with Peter Latta, a named executive officer of the Company. If a Change of Control occurs, and Peter Latta’s employment is terminated by the Company for any reason, except excluding a termination for just cause, within six (6) months of the date of the Change of Control, or Peter Latta resigns from his employment for Good Reason during such six (6) month period, then Peter Latta shall be entitled to receive from the Company an amount equal to Peter Latta’s current monthly base salary multiplied by twelve (12) months which Peter Latta will be paid his salary, accrued bonuses, if any, and vacation earned and other amounts due to him up to the termination date; which amount is to be paid in a lump sum within 10 business days of the Change in Control termination date.
On July 1, 2013, the Company entered into an employment agreement with J.C. Rodríguez, a named executive officer of the Company. The employment agreement was further amended on April 14, 2014 to provide termination as follows:
| (a) | by J.C. Rodriguez electing to give the Employer not less than three months prior notice of such termination; |
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|
|
| (b) | by the Company electing to give J.C. Rodriguez three months prior notice of such termination along with a termination payment equal to the sum of J.C. Rodriguez’s fee earned pursuant to Section TEN during the preceding 12 months prior to the month notice of termination was given plus any unpaid vacation and other amounts due to him up to the termination; and |
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|
|
| (c) | by J.C. Rodriguez electing to give the Company notice, in the event that there occurs a Change of Control (as defined below) within six months of the effective date of such Change of Control, and if J.C. Rodriguez so elects to terminate this Agreement, or by the Company upon notice to J.C. Rodriguez within three months prior to or within six months after a Change of Control is announced by the Company, or its parent, then the Company will be entitled to a termination payment equal to three times the sum of J.C. Rodriguez’s fee earned pursuant to the employment agreement during the preceding 12 months prior to the month notice of termination was given, plus any accrued vacation and other amounts due to him up to the termination. |
A Change of Control shall be deemed to have occurred when:
| (i) | any person, entity or group becomes the beneficial owner of 20% or more of the combined voting power of the Company’s then outstanding voting securities entitled to vote generally in the election of directors, and such person, entity or group uses such effective voting control to change a majority of the Board of Directors of the Company, either all at once or through any series of elections and appointments when considered together; or |
|
|
|
| (ii) | completion of the sale or other disposition by the Company of all or substantially all of the Company’s assets or a reorganization or merger or consolidation of the Company with any other entity or corporation, other than: |
| (A) | a reorganization or merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent, either by remaining outstanding or by being converted into voting securities of another entity, more than 50.1% of the combined voting power of the voting securities of the Company or such other entity outstanding immediately after such reorganization or merger or consolidation; or |
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|
|
| (B) | a reorganization or merger or consolidation effected to implement a recapitalization or reincorporation of the Company (or similar transaction) that does not result in a material change in beneficial ownership of the voting securities of the Company or its successor. |
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Director Compensation
The following table sets forth the value of all compensation paid or accrued to the directors, excluding Mr. Wolfin who is paid as an officer and not as a director, in their capacity as directors for the year ended December 31, 2021:
Name |
| Fees earned(5) ($) |
|
| Share-based awards(1) (5) ($) |
|
| Option-based awards(2)(5) ($) |
|
| Non-equity incentive plan compensation(3)(5) ($) |
| Pension value(4) ($) |
| All other compensation ($) |
| Total(5) ($) |
| ||||
Gary Robertson* |
|
| 58,228 |
|
|
| 60,801 |
|
|
| 22,104 |
|
| Nil |
| Nil |
| Nil |
|
| 141,133 |
|
Jasman Yee |
|
| 35,096 |
|
|
| 55,130 |
|
|
| 22,104 |
|
| Nil |
| Nil |
| Nil |
|
| 112,330 |
|
Peter Bojtos* |
|
| 43,870 |
|
|
| 53,306 |
|
|
| 22,104 |
|
| Nil |
| Nil |
| Nil |
|
| 119,281 |
|
Ronald Andrews*(6) |
|
| 45,450 |
|
|
| 52,030 |
|
|
| 22,104 |
|
| Nil |
| Nil |
| Nil |
|
| 119,584 |
|
__________
* | Independent and Non-Employee Directors |
|
|
(1) | Share Based Awards are in the form of RSU Plan. The “2018 RSU Plan” the unallocated entitlements under the 2018 RSU Plan were approved by shareholders on May 27, 2021 and the maximum number of RSU shares issuable under this Plan shall not, together with all other security-based compensation arrangements of the Corporation exceed 10% of the issued and outstanding Common Shares as at the date of such Grant on a non-diluted basis. As of December 31, 2021, No RSUs were granted under the 2018 RSU Plan to officers, directors, employees, and consultants, and 1,330,167 were vested and 104,356 were cancelled. The value of the RSUs is based on the closing price of the Common Shares on the vesting date. The RSUs will vest one-third annually over three years, and the amount above reflects the accrual for unvested share-based awards issued in the current and previous years, as at December 31, 2021. The closing market price on August 4, 2021 was C$1.26 per common share, the closing market price on August 28, 2021 was C$1.29 per common share, and the closing market price on August 21, 2021 was C$1.18 per common share. |
|
|
(2) | The methodology used to calculate the grant-date fair value is based on the Black-Scholes Option Pricing Model. During the year ended December 31, 2021, new option-based awards were granted to officers, directors, employees, and consultants. The fair value was estimated using the following weighted-average assumptions: risk-free interest rate of 0.30%, expected dividend yield of 0%, expected option life of 5 years, and expected share price volatility of 66.09%. |
|
|
(3) | The Company does not have any non-equity incentive plans. |
|
|
(4) | The Company does not have any pension plans. |
|
|
(5) | All director compensation is paid in Canadian dollars and is converted into US dollars by applying an exchange rate of US$1.00 = C$1.2537, which represents the average exchange rate for the year 2021 as quoted by the Bank of Canada. |
|
|
(6) | Mr. Ronald Andrews was appointed on May 30, 2019. |
The Board, on recommendation of the Compensation Committee, determines director compensation. The objective in determining such director compensation is to ensure that the Company can attract and retain experienced and qualified individuals to serve as directors. The Company compensates its non-executive directors through the payment of directors’ fees, plus annual retainer for board and committee chair, and per meeting fees, and through the grant of incentive stock options and RSUs. All retainers are paid pro rata on a quarterly basis. The non-executive directors receive the following annual retainers and other fees for their services as directors:
Annual Retainer per Director |
| $ | 23,929 | * |
Annual Retainer for Board Chair |
| $ | 23,929 | * |
Annual Retainer for Audit Committee Chair |
| $ | 6,381 | * |
Annual Retainer for Compensation Committee Chair |
| $ | 3,988 | * |
Annual Retainer for Governance Nominating Committee Chair |
| $ | 3,988 | * |
Meeting Attendance Fee per Meeting |
| $ | 798 | * |
*All director compensation is paid in Canadian dollars and is converted into US dollars by applying an exchange rate of US$1.00 = C$1.2537, which represents the average exchange rate for the year 2021 as quoted by the Bank of Canada
The Company may grant incentive stock options and RSUs to Directors of the Company from time to time pursuant to the Stock Option and RSU Plans of the Company and in accordance with the policies of the Toronto Stock Exchange (the “TSX”).
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Outstanding share-based awards and option-based awards
The following table sets forth the options and RSUs granted to the directors to purchase or acquire securities of the Company outstanding at December 31, 2021:
|
| Option-based Awards |
| Share-based Awards | ||||||||||||
Name (1) |
| Number of securities underlying unexercised options (#) |
| Option exercise price (C$) |
| Option expiration date |
| Value of unexercised in-the-money options ($)(2)(4) |
| Share grant date |
| Number of shares or units of shares that have not vested (#)(3) |
| Market or payout value of share-based awards that have not vested ($)(3)(4) |
| Market or payout value of share-based awards not paid out or distributed ($)(3)(4) |
Gary Robertson |
| 150,000 |
| $1.98 |
| Sept 20, 2022 |
| Nil |
| Aug 21 2019 |
| 45,000 |
| 28,356 |
| Nil |
| 100,000 |
| $1.64 |
| Aug 4, 2025 |
| Nil |
| Aug 4, 2020 |
| 40,000 |
| 52,325 |
| Nil | |
Jasman Yee
|
| 125,000 |
| $1.98 |
| Sept 20, 2022 |
| Nil |
| Aug 21, 2019 |
| 35,000 |
| 22,055 |
| Nil |
| 100,000 |
| $1.64 |
| Aug 4, 2025 |
| Nil |
| Aug 4, 2020 |
| 40,000 |
| 52,325 |
| Nil | |
Ronald Andrews (5) |
| 100,000 |
| $1.64 |
| Aug. 4, 2025 |
| Nil |
| Aug 21, 2019 |
| 35,000 |
| 22,055 |
| Nil |
|
|
|
|
|
|
|
|
| Aug 4, 2020 |
| 40,000 |
| 52,325 |
| Nil | |
Peter Bojtos |
| 50,000 |
| $1.30 |
| Aug 28, 2023 |
| Nil |
| Aug 21, 2019 |
| 35,000 |
| 22,055 |
| Nil |
| 100,000 |
| $1.64 |
| Aug 4, 2025 |
| Nil |
| Aug 4, 2020 |
| 40,000 |
| 52,325 |
| Nil | |
(1) | For the compensation of David Wolfin, the named executive officer of the Company, see “Incentive Plan Awards” above. |
|
|
(2) | In-the-Money Options are the difference between the market value of the underlying securities at December 31, 2021 and the exercise price of the option. The closing Toronto Stock Exchange share price for the Company’s common shares as at December 31, 2021 was C$1.11 per common share. |
|
|
(3) | Share Based Awards are in the form of RSU Plan. The “2018 RSU Plan” was approved by the shareholders on May 24, 2018 and unallocated entitlements under the plan were approved on May 27, 2021. The maximum number of RSU shares issuable under this Plan shall not, together with all other security-based compensation arrangements of the Corporation exceed 10% of the issued and outstanding Common Shares as at the date of such Grant on a non-diluted basis. As of December 31, 2021, no RSUs were granted under the 2018 RSU Plan to officers, directors, employees, and consultants, and were 1,330,167 vested and 104,356 were cancelled. The value of the RSUs is based on the closing price of the Common Shares on the vesting date. The RSUs will vest one-third annually over three years, and the amount above reflects the accrual for unvested share-based awards issued in the current and previous years, as at December 31, 2021. The closing market price on August 4, 2021 was C$1.26 per common share, the closing market price on August 28, 2021 was C$1.29 per common share, and the closing market price on August 21, 2021 was C$1.18 per common share. |
|
|
.(4) | The Awards are calculated in Canadian dollars and are converted into US dollars by applying an exchange rate of US$1.00 = C$1.2537 which represents the average exchange rate for the year 2021 as quoted by the Bank of Canada. |
|
|
(5) | Mr. Ronald Andrews was appointed on May 30, 2019. |
Incentive plan awards – value vested or earned during the year
An “incentive plan” is any plan providing compensation that depends on achieving certain performance goals or similar conditions within a specific period. An “incentive plan award” means compensation awarded, earned, paid or payable under an incentive plan.
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The following table sets forth the value vested or earned during the year of option-based awards, share-based awards and non-equity incentive plan compensation paid to directors during the year ended December 31, 2021:
Name (1) |
| Option-based awards – Value vested during the year ($)(2)(4) |
|
| Share-based awards – Value vested during the year ($)(3)(4) |
|
| Non-equity incentive plan compensation – Value earned during the year ($)(4) | |||
Gary Robertson |
|
| 3,789 |
|
|
| 88,179 |
|
| Nil | |
Jasman Yee |
|
| 3,789 |
|
|
| 70,535 |
|
| Nil | |
Ronald Andrews (5) |
|
| 3,789 |
|
|
| 53,043 |
|
| Nil | |
Peter Bojtos |
|
| 3,789 |
|
|
| 60,246 |
|
| Nil | |
____________
(1) | For the compensation of David Wolfin, the named executive officer of the Company, see “Incentive Plan Awards” above. |
|
|
(2) | The aggregate dollar value that would have been realized if the options granted during the year had been exercised on the vesting date. |
|
|
(3) | The RSU Vesting prices were C$1.26 on August 4, 2021 , C$1.29 on August 28, 2021, and C$1.18 on August 21, 2021 per common share. |
|
|
(4) | The Awards are calculated in Canadian dollars and are converted into US dollars by applying an exchange rate of US$1.00 = C$1.2537 which represents the average exchange rate for the year quoted by the Bank of Canada. |
|
|
(5) | Mr. Ronald Andrews was appointed on May 30, 2019. |
Termination of Employment, Changes in Responsibilities and Employment Contracts
On January 1, 2016, the Company entered into a consulting agreement with Intermark Capital Corporation, a company wholly-owned by David Wolfin, the named executive officer of the Company. The consulting agreement was further amended on March 23, 2016. On January 1, 2022, the Company renewed the consulting agreement with Intermark Capital Corporation for a period of three years with the same terms and conditions.
On May 30, 2019, the Company entered into a Change of Control Agreement with Nathan Harte, and Peter Latta, both who are named executive officers of the Company.
On July 1, 2013, the Company entered into an employment agreement with J.C. Rodríguez, the named executive officer of the Company. The employment agreement was further amended on April 14, 2014.
Please see “Termination and Change of Control Benefits” above for details.
C. Board practices
The Board is currently comprised of five directors. The size and experience of the Board is important for providing the Company with effective governance in the mining industry. The Board’s mandate and responsibilities can be effectively and efficiently administered at its current size. The Board has functioned and is of the view that it can continue to function, independently of management as required. Directors are elected for a term of one year at the annual general meeting. At the Annual General Meeting, held on August 27, 2020, the shareholders elected Messrs. Gary Robertson, David Wolfin, Jasman Yee, Peter Bojtos, and Ronald Andrews as directors of the Company.
The Board has considered the relationship of each director to the Company and currently considers three of the five directors to be “unrelated” (Messrs. Andrews, Robertson, and Bojtos). “Unrelated director” means a director who is independent of management and free from any interest and any business or other relationship which could reasonably be perceived to materially interfere with the director’s ability to act with a view to the best interest of the Company, other than interests and relationships arising solely from shareholdings.
Procedures are in place to allow the Board to function independently. At the present time, the Board has experienced directors that have made a significant contribution to the Company’s success, and is satisfied that it is not constrained in its access to information, in its deliberations or in its ability to satisfy the mandate established by law to supervise the business and affairs of the Company. Committees meet independent of management and other directors.
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Mandate of the Board of Directors, its Committees and Management
The role of the Board is to oversee the conduct of the Company’s business, including the supervision of management, and determining the Company’s strategy. Management is responsible for the Company’s day to day operations, including proposing its strategic direction and presenting budgets and business plans to the Board for consideration and approval. The strategic plan takes into account, among other things, the opportunities and risks of the Company’s business. Management provides the Board with periodic assessments as to those risks and the implementation of the Company’s systems to manage those risks. The Board reviews the personnel needs of the Company from time to time, having particular regard to succession issues relating to senior management. Management is responsible for the training and development of personnel. The Board assesses how effectively the Company communicates with shareholders but has not adopted a formal communications policy. Through the Audit Committee, and in conjunction with its auditors, the Board assesses the adequacy of the Company’s internal control and management information systems. The Board looks to management to keep it informed of all significant developments relating to or affecting the Company’s operations. Major financings, acquisitions, dispositions and investments are subject to board approval. A formal Code of Ethics (“Code”) has been adopted and applies to all directors, officers and employees. The Board meets on at least a quarterly basis and following the annual meeting of shareholders. The frequency of the meetings and nature of the meeting agendas are dependent on the nature of the business and affairs which the Company faces from time to time. During the year ended December 31, 2020, the Board met ten times.
To facilitate the functioning of the Board independently of management, the Audit Committee, Compensation Committee and Governance and Nominating Committee consist of majority independent directors. When appropriate, members of management are not present for the discussion and determination of certain matters at meetings of the Board. The independent directors hold regularly scheduled meetings at which non-independent directors and members of management are not in attendance.
The Board and committees may take action at these meetings or at a meeting by conference call or by written consent.
Committees
Audit Committee
Under Canadian National Instrument 52-110 – Audit Committees (“NI 52-110”) a reporting issuer in those jurisdictions which have adopted NI 52-110 and that is not a “venture issuer” is required to provide disclosure with respect to its Audit Committee including the text of the Audit Committee’s Charter, composition of the Committee, and the fees paid to the external auditor. Accordingly, the Company provides the following disclosure with respect to its Audit Committee:
Audit Committee Charter
1. | Purpose of the Committee |
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|
1.1 | The purpose of the Audit Committee is to assist the Board of Directors in its oversight of the integrity of the Company’s financial statements and other relevant public disclosures, the Company’s compliance with legal and regulatory requirements relating to financial reporting, the external auditors’ qualifications and independence and the performance of the internal audit function and the external auditors. |
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2. | Members of the Audit Committee |
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2.1 | All Members of the Audit Committee must be “financially literate” as defined under NI 52-110, having sufficient accounting or related financial management expertise to read and understand a set of financial statements, including the related notes, that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Company’s financial statements. |
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2.2 | The Audit Committee shall consist of no less than three Directors. |
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2.3 | All Members of the Audit Committee must be “independent” as defined under NI 52-110. |
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3. | Relationship with External Auditors |
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3.1 | The external auditors are the independent representatives of the shareholders, but the external auditors are also accountable to the Board of Directors and the Audit Committee. |
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3.2 | The external auditors must be able to complete their audit procedures and reviews with professional independence, free from any undue interference from the management or directors. |
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3.3 | The Audit Committee must direct and ensure that the management fully co-operates with the external auditors in the course of carrying out their professional duties. |
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3.4 | The Audit Committee will have direct communications access at all times with the external auditors. |
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4. | Non-Audit Services |
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|
4.1 | The external auditors are prohibited from providing any non-audit services to the Company, without the express written consent of the Audit Committee. In determining whether the external auditors will be granted permission to provide non-audit services to the Company, the Audit Committee must consider that the benefits to the Company from the provision of such services, outweighs the risk of any compromise to or loss of the independence of the external auditors in carrying out their auditing mandate. |
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4.2 | Notwithstanding section 4.1, the external auditors are prohibited at all times from carrying out any of the following services, while they are appointed the external auditors of the Company: |
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(i) acting as an agent of the Company for the sale of all or substantially all of the undertaking of the Company; and | |
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(ii) performing any non-audit consulting work for any director or senior officer of the Company in their personal capacity, but not as a director, officer or insider of any other entity not associated or related to the Company. | |
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5. | Appointment of Auditors |
|
|
5.1 | The external auditors will be appointed each year by the shareholders of the Company at the annual general meeting of the shareholders. |
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5.2 | The Audit Committee will nominate the external auditors for appointment, such nomination to be approved by the Board of Directors. |
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6. | Evaluation of Auditors |
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6.1 | The Audit Committee will review the performance of the external auditors on at least an annual basis, and notify the Board of Directors and the external auditors in writing of any concerns in regards to the performance of the external auditors, or the accounting or auditing methods, procedures, standards, or principles applied by the external auditors, or any other accounting or auditing issues which come to the attention of the Audit Committee. |
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7. | Remuneration of the Auditors |
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7.1 | The remuneration of the external auditors will be determined by the Board of Directors, upon the annual authorization of the shareholders at each general meeting of the shareholders. |
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7.2 | The remuneration of the external auditors will be determined based on the time required to complete auditing procedures as determined by the external auditors in accordance with the Canadian Auditing Standards and the stands of the PCAOB. |
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8. | Termination of the Auditors |
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8.1 | The Audit Committee has the power to terminate the services of the external auditors, with or without the approval of the Board of Directors, provided the Committee is acting reasonable and responsible. |
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9. | Funding of Auditing and Consulting Services |
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9.1 | Auditing expenses will be funded by the Company. The auditors must not perform any other consulting services for the Company, which could impair or interfere with their role as the independent auditors of the Company. |
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10. | Role and Responsibilities of the Internal Auditor |
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10.1 | Due to the Company’s size and limited financial resources, the CEO and CFO of the Company shall be responsible for implementing internal controls and performing the role of the internal auditor to ensure that such controls are adequate. |
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11. | Oversight of Internal Controls |
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11.1 | The Audit Committee will have the oversight responsibility for ensuring that the internal controls are implemented and monitored, and that such internal controls are effective. |
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12. | Continuous Disclosure Requirements |
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12.1 | Due to the Company’s size and limited financial resources, the Corporate Secretary of the Company is responsible for ensuring that the Company’s continuous reporting requirements are met and in compliance with applicable regulatory requirements. |
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13. | Other Auditing Matters |
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13.1 | The Audit Committee may meet with the Auditors independently of the management of the Company at any time, provided the Committee is acting reasonable and responsible. |
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13.2 | The Auditors are authorized and directed to respond to all enquiries from the Audit Committee in a thorough and timely fashion, without reporting these enquiries or actions to the Board of Directors or the management of the Company. |
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14. | Annual Review |
|
|
14.1 | The Audit Committee Charter will be reviewed annually by the Board of Directors and the Audit Committee to assess the adequacy of this Charter. |
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15. | Independent Advisers |
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15.1 | The Audit Committee shall have the power to retain legal, accounting or other advisors to assist the Committee. |
Composition of Audit Committee
As of March 17, 2022, the following are the members of the Audit Committee:
Name | Independent (1) | Financially Literate(2) | Education and Experience |
Ronald Andrews | Yes | Yes | Master’s degree in political science, and a Bachelor’s degree of Science in horticulture, and on the boards of two reporting issuers.
|
Gary Robertson | Yes | Yes | Certified Financial Planner and director of several reporting issuers
|
Peter Bojtos | Yes | Yes | Professional Engineer with over 48 years of worldwide experience in the mining industry |
(1) | A member of an audit committee is independent if the member has no direct or indirect material relationship with the Company, which could, in the view of the Board of Directors, reasonably interfere with the exercise of a member’s independent judgment. |
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(2) | An individual is financially literate if he has the ability to read and understand a set of financial statements that present a breadth of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Company’s financial statements. |
Relevant Education and Experience
The relevant education and/or experience of each member of the Audit Committee is as follows:
Ronald Andrews: Mr. Andrews has a Bachelor of Science degree in horticulture from Washington State University and a Master’s degree in Political Science. Mr. Andrews is the owner and operator of Andrews Orchards and sells and distributes agricultural chemicals and fertilizers. Mr. Andrews has acted as director and chairman of the audit committee of several public mining companies
Gary Robertson: Mr. Robertson is a Certified Financial Planner. He has worked in the financial industry for the past twenty years, and has acted as director of several public mining companies. Mr. Robertson has gained considerable financial and business experience through his involvement in various businesses in the mining industries.
Peter Bojtos: Mr. Bojtos is a professional engineer with over 48 years of worldwide experience in the mining industry. He has an extensive background in corporate management as well as in all facets of the industry from exploration through the feasibility study stage to mine construction, operations and decommissioning. Mr. Bojtos graduated from the University of Leicester, England in 1972, following which he worked at open-pit iron-ore and underground base-metal and uranium mines in West Africa, the United States and Canada. Following that, he worked in Toronto for Kerr Addison Mines Ltd., a Noranda Group company, in increasingly senior management and officer positions for 12 years. From 1990 to 1992 he was the President CEO of RFC Resource Finance Corp. developing a zinc mine in Washington State. From 1992 to 1993 Mr. Bojtos was the President CEO of Consolidated Nevada Goldfields Corp. which operated precious metal mines in the United States. From 1993 to 1995 he was Chairman CEO of Greenstone Resources Ltd, constructing and operating several gold mines in Central America. From 2017 to 2019 he was president of Pembridge Resources plc. He has served on over two dozen public company boards from 1996 to present.
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Audit Committee Oversight
At no time since the commencement of the Company’s most recently completed financial year was a recommendation of the Audit Committee to nominate or compensate an external auditor not adopted by the Board of Directors.
Reliance on Certain Exemptions
At no time since the commencement of the Company’s most recently completed financial year has the Company relied on the exemption in Section 2.4 of NI 52-110 (De Minimis Non-audit Services), or an exemption from NI 52-110, in whole or in part, granted under Part 8 of National Instrument 52-110.
Pre-Approval Policies and Procedures
The Audit Committee is authorized by the Board of Directors to review the performance of the Company’s external auditors and approve in advance provision of services other than auditing and to consider the independence of the external auditors, including a review of the range of services provided in the context of all consulting services bought by the Company. The Audit Committee is authorized to approve in writing any non-audit services or additional work which the Chairman of the Audit Committee deems is necessary, and the Chairman will notify the other members of the Audit Committee of such non-audit or additional work and the reasons for such non-audit work for the Committee’s consideration, and if thought fit, approval in writing.
External Auditor Service Fees
The fees billed by the Company’s external auditors in each of the last two fiscal years for audit and non-audit related services provided to the Company or its subsidiaries (if any) are as follows:
Financial Year Ending | Audit Fees | Audit Related Fees(2) | Tax Fees(3) (1) | All other Fees(4) |
December 31, 20211) | C$375,000 | C$0 | C$0 | C$68,512 |
December 31, 2020 | C$253,000 | C$0 | C$0 | C$37,250 |
(1) | Estimated |
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|
(2) | Travel and expenses |
|
|
(3) | Preparation of corporate tax returns |
|
|
(4) | Procedures and letters related to financings |
Compensation Committee
The Compensation Committee of the Company is responsible for, among other things, evaluating the performance of the Company’s executive officers, determining or making recommendations to the Board with respect to the compensation of the Company’s executive officers, making recommendations to the Board with respect to director compensation, incentive compensation plans and equity-based plans, making recommendations to the Board with respect to the compensation policy for the employees of the Company or its subsidiaries and ensuring that the Company is in compliance with all legal requirements with respect to compensation disclosure. In performing its duties, the Compensation Committee has the authority to engage such advisors, including executive compensation consultants, as it considers necessary.
The Compensation Committee is currently composed of Peter Bojtos, Gary Robertson, and Ronald Andrews, all of whom are independent directors within the meaning set out in NI 58-101. All three members of the Compensation Committee are experienced participants in the business world who have sat on the board of directors of other companies, charities or business associations, in addition to the Board of the Company.
The Compensation Committee has not engaged the services of independent compensation consultants to assist it in making recommendations to the Board with respect to director and executive officer compensation.
In performing its duties, the Compensation Committee has considered the implications of risks associated with the Company’s compensation policies and practices. At its present early stage of development and considering its present compensation policies, the Company currently has no compensation policies or practices that would encourage an executive officer or other individual to take inappropriate or excessive risks.
The charter of the Compensation Committee is available at the Company’s website at www.avino.com.
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Governance and Nominating Committee
The Governance and Nominating Committee review/recommend matters to the Board with respect to the governance and nominating matters. In this regard, the purpose of the Governance and Nominating Committee is to:
i. | manage the corporate governance system for the Board; |
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ii. | assist the Board to fulfill its duty to meet the applicable legal, regulatory and (self-regulatory) business principles and ‘codes of best practice’ of corporate behaviour and conduct; |
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iii. | assist in the creation of a corporate culture and environment of integrity and accountability; |
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iv. | monitor the quality of the relationship between the Board and management of the Company; |
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v. | review the Chief Executive Officer’s succession plan; |
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vi. | recommend to the Board nominees for appointment of the Board; |
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vii. | lead the Board’s annual review of the Chief Executive Officer’s performance; and |
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viii. | annually review and set an agenda of the Board on an ongoing basis. |
The Governance and Nominating Committee currently consists of three directors, Jasman Yee, Ronald Andrews, and Peter Bojtos, two of the three directors to be “independent” (Messrs. Bojtos and Andrews).
The charter of the Governance and Nominating Committee is available at the Company’s website at www.avino.com.
D. Employees
As at December 31, 2021, the Company had 18 employees located in Mexico and 12 employees in Canada. Certain of the Company’s senior management as well as administrative and corporate services are located in Canada and are contracted by the Company through their companies or through the Company’s cost sharing agreement for overhead and corporate services with Oniva International Services Corp. However, because these people are hired through companies, they are not technically deemed employees of the Company.
E. Share ownership
The following table sets forth the share ownership of the individuals referred to in “Compensation” section above as of March 17, 2022:
Name of Beneficial Owner |
| Number of Shares |
|
| Percent |
| ||
Ronald Andrews |
|
| 145,000 |
|
| * |
| |
Gary Robertson |
|
| 519,216 |
|
| * |
| |
David Wolfin |
|
| 2,428,178 |
|
|
| 1.96 | % |
Jasman Yee |
|
| 386,520 |
|
| * |
| |
Peter Bojtos |
|
| 113,000 |
|
| * |
| |
J.C. Rodríguez |
|
| 625,167 |
|
| * |
| |
Nathan Harte |
|
| 107,675 |
|
| * |
| |
Peter Latta |
|
| 69,000 |
|
| * |
| |
*Less than one percent
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Outstanding Options
The following information, as of March 17, 2022 reflects outstanding options held by the individuals referred to in “Compensation” section above/
|
| No. of Shares |
|
| Date of Grant |
| Exercise Price* |
|
| Expiration Date | |||
David Wolfin President, CEO and Director |
| 250,000 300,000 |
|
| Sept. 20, 2017 Aug 4, 2020 |
| $1.98 $1.64 |
|
| Sept. 20, 2022 Aug 4, 2025 | |||
Nathan Harte CFO |
| 25,000 48,000 150,000 |
|
| Sept 20, 2017 Aug 21, 2019 Aug 4, 2020 |
| $1.98 $0.79 $1.64 |
|
| Sept. 20, 2022 Aug 21, 2024 Aug 4, 2025 | |||
J.C. Rodríguez COO |
| 125,000 200,000 |
|
| Sept. 20, 2017 Aug 4, 2020 |
| $1.98 $1.64 |
|
| Sept. 20, 2022 Aug 4, 2025 | |||
Peter Latta** VP Technical Services |
|
| 100,000 |
|
| Aug 4, 2020 |
| $ | 1.64 |
|
| Aug 4, 2025 | |
Gary Robertson Director |
| 150,000 100,000 |
|
| Sept. 20, 2017 Aug 4, 2020 |
| $1.98 $1.64 |
|
| Sept. 20, 2022 Aug 4, 2025 | |||
Jasman Yee Director |
| 125,000 100,000 |
|
| Sept. 20, 2017 Aug 4, 2020 |
| $1.98 $1.64 |
|
| Sept. 20, 2022 Aug 4, 2025 | |||
Ronald Andrews |
|
| 100,000 |
|
| Aug 4, 2020 |
| $ | 1.64 |
|
| Aug 4, 2025 | |
Peter Bojtos |
| 50,000 100,000 |
|
| Aug 28, 2018 Aug 4, 2020 |
| $1.30 $1.64 |
|
| Aug 28, 2023 Aug 4, 2025 | |||
*The option exercise price is quoted in Canadian dollars as they relate specifically to the Canadian dollar share price as quoted on the Toronto Stock Exchange.
** Mr. Peter Latta was appointed VP Technical Services on October 20, 2020.
Item 7. Major Shareholders and Related Party Transactions
B. Major shareholders
To the knowledge of the Company, it is not directly or indirectly owned or controlled by any other corporation or by the Canadian Government, or any foreign government, or by any other natural or legal person.
As of March 24, 2022, to the knowledge of the Company, no person owned more than five (5%) percent of the outstanding shares of each class of the Company’s voting securities.
As of March 24, 2022, there were XXXXX common shares issued and outstanding. Of those common shares issued and outstanding, 49,174,477 common shares were held by 73 registered shareholders whose addresses were in Canada.
B. Related party transactions
All related party transactions are recorded at the exchange amount which is the amount agreed to by the Company and the related party.
The Company transacts with companies related to Avino’s directors or officers. All amounts payable are non-interest bearing and due on demand. Advances to Oniva International Services Corp. (“Oniva”) of $Nil (December 31, 2019 - $Nil) for expenditures to be incurred on behalf of the Company are included in prepaid expenses and other assets on the consolidated statements of financial position as at December 31, 2021. The following table summarizes the amounts due to related parties:
|
| December 31, 2021 |
|
| December 31, 2020 |
| ||
Directors’ fees |
| $ | 56,000 |
|
| $ | 48,000 |
|
Oniva International Services Corp. |
|
| 107,000 |
|
|
| 106,000 |
|
|
| $ | 163,000 |
|
| $ | 154,000 |
|
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The Company has a cost sharing agreement to reimburse Oniva for its expenses and to pay Oniva a percentage fee. Pursuant to the cost sharing agreement, the Company will reimburse Oniva for the Company’s percentage of overhead and corporate expenses, and for out-of-pocket expenses incurred on behalf of the Company. David Wolfin, President CEO, and a director of the Company is the sole owner of Oniva. The cost sharing agreement may be terminated with one-month notice by either party without penalty. The transactions with Oniva during the years ended December 31, are summarized below:
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Salaries and benefits |
| $ | 766,000 |
|
| $ | 636,000 |
|
| $ | 665,000 |
|
Office and miscellaneous |
|
| 403,000 |
|
|
| 290,000 |
|
|
| 322,000 |
|
Exploration and evaluation assets |
|
| - |
|
|
| - |
|
|
| 206,000 |
|
|
| $ | 1,169,000 |
|
| $ | 926,000 |
|
| $ | 1,193,000 |
|
For services provided to the Company as President and Chief Executive Officer, the Company pays Intermark Capital Corporation (“ICC”), a company controlled by David Wolfin, for consulting services. For the years ended December 31, 2021, 2020 and 2019, the Company paid $239,000, $224,000, and $226,000 respectively to ICC.
C. Interests of experts and counsel
Not Applicable.
Item 8. Financial Information
A. Consolidated Statements and Other Financial Information
See ‘‘Item 18. Financial Statements’’ for our Annual Audited Consolidated Financial Statements, related notes and other financial information filed with this annual report on Form 20-F.
Dividend Policy
The Company has never paid any dividends and does not intend to in the near future.
B. Significant Changes
Except as otherwise disclosed in this annual report, there have been no material changes in our financial position, operations or cash flows since December 31, 2021.
Item 9. The Offer and Listing
A. Offer and listing details
Our common shares are listed on the NYSE American and the TSX under the symbol ASM. No suspensions regarding our common shares have occurred during the past 3 years.
B. Plan of distribution
Not Applicable.
C. Markets
On January 8, 2018, the Company graduated from the TSX-V to the TSX where our common shares are listed under the symbol “ASM”. We are also listed on the Berlin and Frankfurt Stock Exchanges under the symbol “GV6”, and on the NYSE American under the symbol “ASM”.
D. Selling shareholders
Not Applicable.
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E. Dilution
Not Applicable.
F. Expenses of the issue
Not Applicable.
Item 10. Additional Information
A. Share capital
Not Applicable.
B. Memorandum and articles of association
Common Shares
All issued and outstanding common shares are fully paid and non-assessable. Each holder of record of common shares is entitled to one vote for each common share so held on all matters requiring a vote of shareholders, including the election of directors. The holders of common shares will be entitled to dividends on a pro-rata basis, if and when as declared by the board of directors. There are no preferences, conversion rights, pre-emptive rights, subscription rights, or restrictions or transfers attached to the common shares. In the event of liquidation, dissolution, or winding up of the Company, the holders of common shares are entitled to participate in the assets of the Company available for distribution after satisfaction of the claims of creditors. The Company is authorized to issue an unlimited number of common shares.
Take Over Bid Regulations
On May 9, 2016, amendments came into effect in Canada under National Instrument 62-104, Take-Over bids and Issuer Bids (the “Instrument”), which require all non-exempt take-over bids of a Canadian reporting issuer (“Bids”) to be subject to the following tender requirements:
50% Minimum Tender Requirement: Bids will be subject to a mandatory minimum tender requirement of more than 50% of the outstanding securities of the class of securities that are subject to the Bid, excluding those securities beneficially owned, or over which control or direction is exercised, by the offeror and its joint actors.
105 Day Minimum Bid Period: Bids will be required to remain open for a minimum period of 105 days, subject to two exceptions. Firstly, the target issuer’s board of directors may issue a “deposit period news release” for a proposed or Bid, which allows an initial bid period that is shorter than 105 days, but not less than 35 days. In result, if this action is taken by the Board, then any other outstanding or subsequent Bids will also be entitled to the shorter minimum deposit period calculated from the date that the other Bid is made. Secondly, if an issuer issues a news release that it has entered into an “alternate transaction” (i.e., a friendly change of control transaction that is not a Bid, such as a plan of arrangement), then any other outstanding or subsequent Bids will be entitled to a minimum 35 day deposit period calculated from the date that other Bid is made.
10 Day Extension Requirement: Following a successful Bid where the minimum tender requirement has been met, as well as the satisfaction or waiver of all other Bid terms and conditions, Bids will be required to be extended for at least an additional 10-day period to permit shareholders who did not tender time to do so on the same terms.
Under the Instrument, an offeror who makes a Bid which is open for 105 days, together with a further 10-day extension, will still be able to avail itself of the compulsory acquisition procedure provisions under applicable Canadian corporate legislation. These provisions permit the offeror to acquire on the same terms as contained in the Bid, the remaining shares held by any minority shareholders who did not tender, within 120 days of the launch of the Bid, if at least 90% of the total shares that were subject to the Bid have been acquired.
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Powers and Duties of Directors
The directors shall manage or supervise the management of the affairs and business of the Company and shall have authority to exercise all such powers of the Company as are not, by the BCBCA, or by the Notice of Articles, required to be exercised by the Company in a general meeting.
Directors will serve as such until the next annual meeting. In general, a director who is, in any way, directly or indirectly interested in an existing or proposed contract or transaction with the Company whereby a duty or interest might be created to conflict with his duty or interest as a director, shall declare the nature and extent of his interest in such contract or transaction or the conflict or potential conflict with his duty and interest as a director. Such director shall not vote in respect of any such contract or transaction with the Company in which he is interested and if he shall do so, his vote shall not be counted, but he shall be counted in the quorum present at the meeting at which such vote is taken. However, notwithstanding the foregoing, directors shall have the right to vote on determining the remuneration of the directors.
The directors may from time to time on behalf of the Company: (a) borrow money in such manner and amount from such sources and upon such terms and conditions as they think fit; (b) issue bonds, debentures and other debt obligations; and (c) mortgage, charge or give other security on the whole or any part of the property and assets of the Company.
The directors of the Company must be persons of the full age of 18 years. There is no minimum share ownership to be a Director. No person shall be a director of the Company who is not capable of managing their own affairs; is an undischarged bankrupt; convicted of an offense in connection with the promotion, formation or management of a corporation or involved in fraud within the last five years; or a person that has had a registration in any capacity under the British Columbia Securities Act or the British Columbia Mortgage Brokers Act cancelled within the last five years.
Shareholders
An annual general meeting shall be held once in every calendar year at such time and place as may be determined by the directors. A quorum at an annual general meeting and special meeting shall be two shareholders or one or more proxy holders representing two shareholders, or one shareholder and a proxy holder representing another shareholder. There is no limitation imposed by the laws of Canada or by the charter or other constituent documents of the Company on the right of a non-resident to hold or vote the common shares, other than as provided in the Investment Canada Act, referred to as the “Investment Act”, discussed below under “Item 10. Additional Information, D. Exchange Controls”
In accordance with British Columbia law, directors shall be elected by an “ordinary resolution” which means: (a) a resolution passed by the shareholders of the Company at a general meeting by a simple majority of the votes cast in person or by proxy; or (b) a resolution that has been submitted to all of the shareholders of the Company who would have been entitled to vote on it in person or by proxy at a general meeting of the Company and that has been consented to in writing by such shareholders of the Company holding shares carrying not less than a special majority of two-thirds of the votes entitled to be cast on it.
Under British Columbia law certain items such as an amendment to the Company’s articles or entering into a merger requires approval by a “special resolution” which means: (a) a resolution passed by a majority of not less than two-thirds of the votes cast by the shareholders of the Company who, being entitled to do so, vote in person or by proxy at a general meeting of the company; or (b) a resolution consented to in writing by every shareholder of the Company who would have been entitled to vote in person or by proxy at a general meeting of the Company, and a resolution so consented to in writing is deemed to be a special resolution passed at a general meeting of the Company.
See also Exhibit 2.(d).
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C. Material contracts
| 1. | Share Purchase Agreement dated October 27, 2021 entered into among the Company, Coeur Mining, Inc., Coeur La Preciosa Silver Corp., Proyectos Mineros La Preciosa S.A De C.V, Coeur Explorations, Inc. Cervantes, LLC, La Preciosa Silver Gold Mines Ltd and La Luna Silver Gold Mines Ltd. to acquire the La Preciosa silver project. |
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| 2. | Sales Agreement dated January 13, 2021 entered into among the Company and Cantor Fitzgerald Co., H. C. Wainwright Co., LLC, Roth Capital Partners, LLC, and A.G.P./Alliance Global Partners, LLC re the ATM Offering of US$25,000,000 for distribution in the United States only; |
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| 3. | Option Agreement dated August 12, 2020 entered into between the Company and Silver Wolf Exploration Ltd. regarding the granting of an option to purchase the Ana Maria and El Laberinto properties to Silver Wolf Exploration Ltd. (formerly, Gray Rock Resources Ltd.); |
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| 4. | Share Purchase Agreement dated November 21, 2019 with Talisker Resources Ltd. and Bralorne Gold Mines Ltd. LLC. |
D. Exchange controls
Canada has no system of exchange controls. There are no Canadian restrictions on the repatriation of capital or earnings of a Canadian public company to non-resident investors. There are no laws in Canada or exchange restrictions affecting the remittance of dividends, profits, interest, royalties and other payments to non-resident holders of the Issuer’s securities, except as discussed below under “Item 10. Additional Information, E. Taxation.”
There are no limitations under the laws of Canada or in the organizing documents of the Company on the right of foreigners to hold or vote securities of the Company, except that the Investment Canada Act may require review and approval by the Minister of Industry (Canada) of certain acquisitions of “control” of the Company by a “non-Canadian”. The threshold for acquisitions of control is generally defined as being one-third or more of the voting shares of the Company. “Non-Canadian” generally means an individual who is not a Canadian citizen, or a corporation, partnership, trust or joint venture that is ultimately controlled by non-Canadians.
E. Taxation
Canadian Federal Income Tax Consequences
The following summarizes the principal Canadian federal income tax consequences applicable to the holding and disposition of common shares in the capital of the Company by a United States resident, and who holds common shares solely as capital property, referred to as a “U.S. Holder”. This summary is based on the current provisions of the Income Tax Act (Canada), referred to as the “Tax Act”, the regulations thereunder, all amendments thereto publicly proposed by the government of Canada, the published administrative practices of Revenue Canada, Customs, Excise and Taxation, and the current provisions of the Canada‑United States Income Tax Convention, 1980, as amended, referred to as the “Treaty”. Except as otherwise expressly provided, this summary does not take into account any provincial, territorial or foreign (including without limitation, any United States) tax law or treaty. It has been assumed that all currently proposed amendments will be enacted substantially as proposed and that there is no other relevant change in any governing law or practice, although no assurance can be given in these respects.
Each U.S. Holder is advised to obtain tax and legal advice applicable to such U.S. Holder’s particular circumstances.
Every U.S. Holder is liable to pay a Canadian withholding tax on every dividend that is or is deemed to be paid or credited to the U.S. Holder on the U.S. Holder’s common shares. The statutory rate of withholding tax is 25% of the gross amount of the dividend paid. The Treaty reduces the statutory rate with respect to dividends paid to a U.S. Holder for the purposes of the Treaty. Where applicable, the general rate of withholding tax under the Treaty is 15% of the gross amount of the dividend. The Company is required to withhold the applicable tax from the dividend payable to the U.S. Holder, and to remit the tax to the Receiver General of Canada for the account of the U.S. Holder.
Pursuant to the Tax Act, a U.S. Holder will not be subject to Canadian capital gains tax on any capital gain realized on an actual or deemed disposition of a common share, including a deemed disposition on death, provided that the U.S. Holder did not hold the common share as capital property used in carrying on a business in Canada, and that neither the U.S. Holder nor persons with whom the U.S. Holder did not deal at arms-length (alone or together) owned or had the right or an option to acquire 25% or more of the issued shares of any class of the Company at any time in the five years immediately preceding the disposition.
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United States Federal Income Tax Consequences
The following is a general summary of certain material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from the ownership and disposition of the common shares. This summary applies only to U.S. Holders who hold common shares as capital assets (generally, property held for investment).
This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder as a result of the ownership and disposition of common shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences to such U.S. Holder, including specific tax consequences to a U.S. Holder under an applicable tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any particular U.S. Holder. In addition, this summary does not address the U.S. federal alternative minimum, U.S. federal estate and gift, U.S. Medicare contribution, U.S. state and local, or non-U.S. tax consequences of the acquisition, ownership or disposition of common shares. Except as specifically set forth below, this summary does not discuss applicable tax reporting requirements. Each U.S. Holder should consult its own tax advisor regarding all U.S. federal, U.S. state and local and non-U.S. tax consequences of the ownership and disposition of common shares.
No opinion from U.S. legal counsel or ruling from the Internal Revenue Service (the “IRS”) has been requested, or will be obtained, regarding the U.S. federal income tax consequences of the ownership or disposition of common shares. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, any position taken in this summary. In addition, because the authorities upon which this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the positions taken in this summary.
Scope of This Disclosure
Authorities This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations (whether final, temporary, or proposed), published rulings of the IRS, published administrative positions of the IRS, the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the “Canada-U.S. Tax Convention”), and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date hereof. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive or prospective basis which could affect the U.S. federal income tax considerations described in this summary. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive or prospective basis.
U.S. Holders. For purposes of this summary, the term “U.S. Holder” means a beneficial owner of common shares that is for U.S. federal income tax purposes:
| · | An individual who is a citizen or resident of the U.S.; |
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| · | A corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the U.S., any state thereof or the District of Columbia; |
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| · | An estate the income of which is subject to U.S. federal income taxation regardless of its source; or |
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| · | A trust that (a) is subject to the primary supervision of a court within the U.S. and the control of one or more U.S. persons for all substantial decisions or (b) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person. |
Non-U.S. Holders. For purposes of this summary, a “non-U.S. Holder” is a beneficial owner of common shares that is not a partnership (or other “pass-through” entity) for U.S. federal income tax purposes and is not a U.S. Holder. This summary does not address the U.S. federal income tax considerations applicable to non-U.S. Holders arising from the ownership or disposition of common shares.
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Accordingly, a non-U.S. Holder should consult its own tax advisor regarding all U.S. federal, U.S. state and local, and non-U.S. tax consequences (including the potential application of and operation of any income tax treaties) relating to the purchase of the common shares and the ownership or disposition of common shares.
U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed
This summary does not address the U.S. federal income tax considerations of ownership or disposition of common shares by U.S. Holders that are subject to special provisions under the Code, including, but not limited to, the following: (a) tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) broker-dealers, dealers, or traders in securities or currencies that elect to apply a “mark-to-market” accounting method; (d) U.S. Holders that have a “functional currency” other than the U.S. dollar; (e) U.S. Holders that own common shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than one position; (f) U.S. Holders that acquire common shares in connection with the exercise of employee stock options or otherwise as compensation for services; (g) U.S. Holders that hold common shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment purposes); (h) U.S. Holders that own directly, indirectly, or by attribution, 10% or more, by voting power or value, of the outstanding stock of the Company; and (i) U.S. Holders subject to Section 451(b) of the Code. This summary also does not address the U.S. federal income tax considerations applicable to U.S. Holders who are: (a) U.S. expatriates or former long-term residents of the U.S.; (b) persons that have been, are, or will be a resident or deemed to be a resident in Canada for purposes of the Tax Act; (c) persons that use or hold, will use or hold, or that are or will be deemed to use or hold common shares in connection with carrying on a business in Canada; (d) persons whose common shares constitute “taxable Canadian property” under the Tax Act; or (e) persons that have a permanent establishment in Canada for purposes of the Canada-U.S. Tax Convention. U.S. Holders that are subject to special provisions under the Code, including U.S. Holders described immediately above, should consult their own tax advisors regarding all U.S. federal, U.S. state and local, and non-U.S. tax consequences (including the potential application and operation of any income tax treaties) relating to the acquisition, ownership, or disposition of common shares.
If an entity or arrangement that is classified as a partnership (or other “pass-through” entity) for U.S. federal income tax purposes holds common shares, the U.S. federal income tax consequences to such partnership and the partners (or other owners) of such partnership of the ownership, or disposition of the common shares generally will depend on the activities of the partnership and the status of such partners (or other owners). This summary does not address the U.S. federal income tax consequences for any such partner or partnership (or other “pass-through” entity or its owners). Owners of entities and arrangements that are classified as partnerships (or other “pass-through” entities) for U.S. federal income tax purposes should consult their own tax advisors regarding the U.S. federal income tax consequences of the ownership or disposition of common shares.
Sale or Other Taxable Disposition of Common Shares
Subject to the PFIC rules discussed below, upon the sale or other taxable disposition of common shares, a U.S. Holder generally will recognize a capital gain or loss in an amount equal to the difference between the amount of cash plus the fair market value of any property received and such U.S. Holder’s tax basis in the common shares sold or otherwise disposed of. Such capital gain or loss will generally be a long-term capital gain or loss if, at the time of the sale or other taxable disposition, the U.S. Holder’s holding period for the common shares is more than one year. Preferential tax rates apply to long-term capital gains of non-corporate U.S. Holders. Deductions for capital losses are subject to significant limitations under the Code. A U.S. Holder’s tax basis in common shares generally will be such U.S. Holder’s U.S. dollar cost for such common shares.
Medicare Tax
Certain U.S. Holders that are individuals, estates or trusts and whose income exceeds certain thresholds generally are subject to a 3.8% tax on all or a portion of their net investment income, which may include their gross dividend income and net gains from the disposition of our ordinary shares.
PFIC Status of the Company
Because the Company is producing revenue from its mining operations, the Company does not believe that it was classified as a PFIC for its taxable year ended December 31, 2021. However, the Company has not performed an analysis of whether or not it will be deemed a PFIC for its current taxable year. The determination of PFIC status is inherently factual, is subject to a number of uncertainties, and can be determined only annually at the close of the tax year in question. Additionally, the analysis depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. If the Company is or becomes a PFIC, the foregoing description of the U.S. federal income tax consequences to U.S. Holders of the acquisition, ownership and disposition of Common Shares will be different. There can be no assurance that the Company will or will not be determined to be a PFIC for the current tax year or any prior or future tax year, and no opinion of legal counsel or ruling from the IRS concerning the status of the Company as a PFIC has been obtained or will be requested. U.S. Holders should consult their own U.S. tax advisors regarding the PFIC status of the Company. The U.S. federal income tax consequences of owning and disposing of common shares if the Company is or becomes a PFIC are described below under the heading “Tax Consequences if the Company is a PFIC.”
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A non-U.S. corporation is a PFIC for each tax year in which (i) 75% or more of its gross income is passive income (as defined for U.S. federal income tax purposes) (the “income test”) or (ii) 50% or more (by value) of its assets (based on an average of the quarterly values of the assets during such tax year) either produce or are held for the production of passive income (the “asset test”). For purposes of the PFIC provisions, “gross income” generally includes sales revenues less cost of goods sold, plus income from investments and from incidental or other operations or sources, and “passive income” generally includes dividends, interest, certain rents and royalties, certain gains from commodities or securities transactions and the excess of gains over losses from the disposition of certain assets which product passive income. If a non-U.S. corporation owns at least 25% (by value) of the stock of another corporation, the non-U.S. corporation is treated, for purposes of the income test and asset test, as owning its proportionate share of the assets of the other corporation and as receiving directly its proportionate share of the other corporation’s income.
Under certain attribution and indirect ownership rules, if the Company is a PFIC, U.S. Holders will generally be deemed to own their proportionate share of the Company’s direct or indirect equity interest in any company that is also a PFIC (a “Subsidiary PFIC”), and will be subject to U.S. federal income tax on their proportionate share of (a) any “excess distributions,” as described below, on the stock of a Subsidiary PFIC and (b) a disposition or deemed disposition of the stock of a Subsidiary PFIC by the Company or another Subsidiary PFIC, both as if such U.S. Holders directly held the shares of such Subsidiary PFIC. In addition, U.S. Holders may be subject to U.S. federal income tax on any indirect gain realized on the stock of a Subsidiary PFIC on the sale or disposition of common shares. Accordingly, U.S. Holders should be aware that they could be subject to tax even if no distributions are received and no redemptions or other dispositions of the Company’s common shares are made.
Tax Consequences if the Company is a PFIC
If the Company is a PFIC for any tax year during which a U.S. Holder holds common shares, special rules may increase such U.S. Holder’s U.S. federal income tax liability with respect to the ownership and disposition of such common shares. If the Company is a PFIC for any tax year during which a U.S. Holder owns common shares, the Company will be treated as a PFIC with respect to such U.S. Holder for that tax year and for all subsequent tax years, regardless of whether the Company meets the income test or the asset test for such subsequent tax years, unless the U.S. Holder makes a “deemed sale” election with respect to the common shares. If the election is made, the U.S. Holder will be deemed to sell the common shares it holds at their fair market value on the last day of the last taxable year in which we qualified as a PFIC, and any gain recognized from such deemed sale would be taxed under the PFIC excess distribution regime. After the deemed sale election, the U.S. Holder’s common shares would not be treated as shares of a PFIC unless the Company subsequently becomes a PFIC. U.S. Holders should consult their own U.S. tax advisors regarding the availability and desirability of a deemed sale election.
Under the default PFIC rules:
| · | Any gain realized on the sale or other disposition (including dispositions and certain other events that would not otherwise be treated as taxable events) of common shares (including an indirect disposition of the stock of any Subsidiary PFIC) and any “excess distribution” (defined as a distribution to the extent it (together with all other distributions received in the relevant tax year) exceeds 125% of the average annual distribution received during the shorter of the preceding three years or the U.S. Holder’s holding period for the common shares) received on common shares or with respect to the stock of a Subsidiary PFIC will be allocated ratably to each day of such U.S. Holder’s holding period for the common shares; |
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| · | The amount allocated to the current tax year and any year prior to the first year in which the Company was a PFIC will be taxed as ordinary income in the current year; |
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| · | The amount allocated to each of the other tax years (the “Prior PFIC Years”) will be subject to tax at the highest ordinary income tax rate in effect for the applicable class of taxpayer for that year; and |
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| · | An interest charge will be imposed with respect to the resulting tax attributable to each Prior PFIC Year. |
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A U.S. Holder that makes a timely and effective “mark-to-market” election under Section 1296 of the Code (a “Mark-to-Market Election”) or a timely and effective election to treat the Company and each Subsidiary PFIC as a “qualified electing fund” (a “QEF”) under Section 1295 of the Code (a “QEF Election”) may generally mitigate or avoid the default PFIC rules described above with respect to common shares U.S. Holders should be aware that there can be no assurance that the Company has satisfied or will satisfy the recordkeeping requirements that apply to a QEF or that the Company has supplied or will supply U.S. Holders with information such U.S. Holders require to report under the QEF rules in the event that the Company is a PFIC for any tax year.
A timely and effective QEF Election requires a U.S. Holder to include currently in gross income each year its pro rata share of the Company’s ordinary earnings and net capital gains, regardless of whether such earnings and gains are actually distributed. Thus, a U.S. Holder could have a tax liability with respect to such ordinary earnings or gains without a corresponding receipt of cash from the Company. If the Company is a QEF with respect to a U.S. Holder, the U.S. Holder’s basis in the common shares will be increased to reflect the amount of the taxed but undistributed income. Distributions of income that had previously been taxed will result in a corresponding reduction of basis in the common shares and will not be taxed again as a distribution to a U.S. Holder. Taxable gains on the disposition of common shares by a U.S. Holder that has made a timely and effective QEF Election are generally capital gains. A U.S. Holder must make a QEF Election for the Company and each Subsidiary PFIC if it wishes to have this treatment. To make a QEF Election, a U.S. Holder will need to have an annual information statement from the Company setting forth the ordinary earnings and net capital gains for the year and the Company may not provide this statement, in which case a QEF Election cannot be made. In general, a U.S. Holder must make a QEF Election on or before the due date for filing its income tax return for the first year to which the QEF Election will apply. Under applicable Treasury Regulations, a U.S. Holder will be permitted to make retroactive elections in particular, but limited, circumstances, including if it had a reasonable belief that the Company was not a PFIC and did not file a protective election. If a U.S. Holder owns PFIC stock indirectly through another PFIC, separate QEF Elections must be made for the PFIC in which the U.S. Holder is a direct shareholder and the Subsidiary PFIC for the QEF rules to apply to both PFICs.
Each U.S. Holder should consult its own tax advisor regarding the availability and desirability of, and procedure for, making a timely and effective QEF Election (including a “pedigreed” QEF election where necessary) for the Company and any Subsidiary PFIC.
Alternatively, a Mark-to-Market Election may be made with respect to “marketable stock” in a PFIC if which is stock that is “regularly traded” on a “qualified exchange or other market” (within the meaning of the Code and the applicable U.S. Treasury Regulations). A class of stock that is traded on one or more qualified exchanges or other markets is considered to be “regularly traded” for any calendar year during which such class of stock is traded in other than de minimis quantities on at least 15 days during each calendar quarter. If the common shares are considered to be “regularly traded” within this meaning, then a U.S. Holder generally will be eligible to make a Mark-to-Market Election with respect to its common shares. However, there is no assurance that the common shares will be or remain “regularly traded” for this purpose. A Mark-to-Market Election may not be made with respect to the stock of any Subsidiary PFIC. Hence, a Mark-to-Market Election will not be effective to eliminate the application of the default PFIC rules, described above, with respect to deemed dispositions of Subsidiary PFIC stock, or excess distributions with respect to a Subsidiary PFIC.
A U.S. Holder that makes a timely and effective Mark-to-Market Election with respect to common shares generally will be required to recognize as ordinary income in each tax year in which the Company is a PFIC an amount equal to the excess, if any, of the fair market value of such shares as of the close of such taxable year over the U.S. Holder’s adjusted tax basis in such shares as of the close of such taxable year. A U.S. Holder’s adjusted tax basis in the common shares generally will be increased by the amount of ordinary income recognized with respect to such shares. If the U.S. Holder’s adjusted tax basis in the common shares as of the close of a tax year exceeds the fair market value of such shares as of the close of such taxable year, the U.S. Holder generally will recognize an ordinary loss, but only to the extent of net mark-to-market income recognized with respect to such shares for all prior taxable years. A U.S. Holder’s adjusted tax basis in its common shares generally will be decreased by the amount of ordinary loss recognized with respect to such shares. Any gain recognized upon a disposition of the common shares generally will be treated as ordinary income, and any loss recognized upon a disposition generally will be treated as an ordinary loss to the extent of net mark-to-market income recognized for all prior taxable years. Any loss recognized in excess thereof will be taxed as a capital loss. Capital losses are subject to significant limitations under the Code.
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Each U.S. Holder should consult its own tax advisor regarding the availability and desirability of, and procedure for, making a timely and effective Mark-to-Market Election with respect to the common shares.
Foreign Tax Credit
A U.S. Holder that pays (whether directly or through withholding) Canadian income tax in connection with the ownership or disposition of common shares may (under certain circumstances) be entitled to receive either a deduction or a credit for such Canadian income tax paid generally at the election of such U.S. Holder. Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder’s income subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all creditable foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year.
Complex limitations apply to the foreign tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S. federal income tax liability that such U.S. Holder’s “foreign source” taxable income bears to such U.S. Holder’s worldwide taxable income. In applying this limitation, a U.S. Holder’s various items of income and deduction must be classified, under complex rules, as either “foreign source” or “U.S. source.” Generally, dividends paid by a non-U.S. corporation should be treated as foreign source for this purpose, and gains recognized on the sale of securities of a non-U.S. corporation by a U.S. Holder should be treated as U.S. source for this purpose, except as otherwise provided in an applicable income tax treaty and if an election is properly made under the Code. However, the amount of a distribution with respect to the common shares that is treated as a “dividend” may be lower for U.S. federal income tax purposes than it is for Canadian federal income tax purposes, resulting in a reduced foreign tax credit allowance to a U.S. Holder. In addition, this limitation is calculated separately with respect to specific categories of income. The foreign tax credit rules are complex, and each U.S. Holder should consult its own U.S. tax advisor regarding the foreign tax credit rules.
Special rules apply to the amount of foreign tax credit that a U.S. Holder may claim on a distribution, including a constructive distribution, from a PFIC. Subject to such special rules, non-U.S. taxes paid with respect to any distribution in respect of stock in a PFIC are generally eligible for the foreign tax credit. The rules relating to distributions by a PFIC and their eligibility for the foreign tax credit are complicated, and a U.S. Holder should consult its own tax advisor regarding their application to the U.S. Holder.
Receipt of Foreign Currency
The amount of any distribution or proceeds paid in Canadian dollars to a U.S. Holder in connection with the ownership of common shares, or on the sale or other taxable disposition of common shares will be included in the gross income of a U.S. Holder as translated into U.S. dollars calculated by reference to the exchange rate prevailing on the date of actual or constructive receipt of the payment, regardless of whether the Canadian dollars are converted into U.S. dollars at that time. If the Canadian dollars received are not converted into U.S. dollars on the date of receipt, a U.S. Holder will have a basis in the Canadian dollars equal to their U.S. dollar value on the date of receipt. Any U.S. Holder who receives payment in Canadian dollars and engages in a subsequent conversion or other disposition of the Canadian dollars may have a foreign currency exchange gain or loss that would generally be treated as ordinary income or loss, and generally will be U.S. source income or loss for foreign tax credit purposes. Different rules apply to U.S. Holders who use the accrual method with respect to foreign currency.
Each U.S. Holder should consult its own U.S. tax advisor regarding the U.S. federal income tax consequences of receiving, owning, and disposing of Canadian dollars.
Information Reporting; Backup Withholding
Under U.S. federal income tax law, certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a non-U.S. corporation. For example, U.S. return disclosure obligations (and related penalties) are imposed on individuals who are U.S. Holders that hold certain specified foreign financial assets in excess of certain threshold amounts. The definition of “specified foreign financial assets” includes not only financial accounts maintained in non-U.S. financial institutions, but also, if held for investment and not in an account maintained by certain financial institutions, any stock or security issued by a non-U.S. person, any financial instrument or contract that has an issuer or counterparty other than a U.S. person and any interest in a non-U.S. entity. A U.S. Holder may be subject to these reporting requirements unless such U.S. Holder’s common shares are held in an account at certain financial institutions. Penalties for failure to file certain of these information returns are substantial. U.S. Holders should consult with their own tax advisors regarding the requirements of filing information returns on IRS Form 8938, and, if applicable, filing obligations relating to the PFIC rules, including possible reporting on an IRS Form 8621.
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Payments made within the U.S. or by a U.S. payor or U.S. middleman of (a) distributions on the common shares, and (b) proceeds arising from the sale or other taxable disposition of common shares generally will be subject to information reporting. In addition, backup withholding, currently at a rate of 24%, may apply to such payments if a U.S. Holder (a) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number (generally on IRS Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding. Certain exempt persons generally are excluded from these information reporting and backup withholding rules. Backup withholding is not an additional tax. Any amounts withheld under the U.S. backup withholding rules will be allowed as a credit against a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner. The information reporting and backup withholding rules may apply even if, under the Canada-U.S. Tax Convention, payments are eligible for a reduced withholding rate.
The discussion of reporting requirements set forth above is not intended to constitute an exhaustive description of all reporting requirements that may apply to a U.S. Holder. A failure to satisfy certain reporting requirements may result in an extension of the time period during which the IRS can assess a tax, and, under certain circumstances, such an extension may apply to assessments of amounts unrelated to any unsatisfied reporting requirement. Each U.S. Holder should consult its own tax advisor regarding the information reporting and backup withholding rules.
THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL U.S. TAX CONSIDERATIONS APPLICABLE TO U.S. HOLDERS WITH RESPECT TO THE OWNERSHIP, EXERCISE OR DISPOSITION OF COMMON SHARES. U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSIDERATIONS APPLICABLE TO THEM IN THEIR PARTICULAR CIRCUMSTANCES.
F. Dividends and paying agents
Not Applicable.
G. Statement by experts
Not Applicable.
H. Documents on display
The Company files annual reports and furnishes other information with the SEC via Edgar. You may review any document that we file at the SEC by accessing the Commission’s website (http://www.sec.gov). The Company also files its annual reports and other information with the Canadian Securities Administrators via SEDAR (www.sedar.com).
Our principal executive office is located at Suite 900, 570 Granville Street, Vancouver, British Columbia V6C 3P1, Canada. Our telephone number is (604) 682-3701. Our website is located at www.avino.com. Information contained on, or that can be accessed through, our website is not part of this Annual Report.
I. Subsidiary information
Discussion regarding our subsidiaries is contained in Item 4.B., Information on the Company; Business Overview.
Item 11. Quantitative and Qualitative Disclosures about Market Risk
The Audit Committee of our board of directors regularly reviews foreign exchange and interest rates. Our policy prohibits the use of financial instruments for speculative purposes. See Note 23, Financial Instruments, in our annual audited consolidated Financial Statements contained in this annual report on Form 20-F for quantitative and qualitative disclosure of market risk.
Item 12. Description of Securities Other than Equity Securities
None.
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PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
None
Item 15. Controls and Procedures
Disclosure Controls and Procedures
As required by paragraph (b) of Rules 13a-15 or 15d-15 under the Exchange Act, our principal executive officer and principal financial officer evaluated our Company’s disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this annual report on Form 20-F. Based on the evaluation, these officers concluded that as of the end of the period covered by this Annual Report on Form 20-F, our disclosure controls and procedures were effective to ensure that the information required to be disclosed by our Company in reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the rules and forms of the Securities and Exchange Commission. These disclosure controls and procedures include controls and procedures designed to ensure that such information is accumulated and communicated to our Company’s management, including our Company’s principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected.
Management’s Report on Internal Controls over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) for our Company. Our Company’s internal control over financial reporting is designed to provide reasonable assurance, not absolute assurance, regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with International Financial Reporting Standards, and that our Company’s receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.
For the purposes of Exchange Act Rules 13a-15(e), 13a-15(f), 15d-15(e), and 15d-15(f), management, including our principal executive officer and principal financial officer, conducted an evaluation of the design and operation of our internal controls over financial reporting as of December 31, 2021, based on the criteria set forth in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, our management concluded our internal controls over financial reporting were effective as at December 31, 2021.
Manning Elliott LLP, the Company’s independent registered public accounting firm, who audited and reported on our consolidated financial statements, has issued an attestation report on the effectiveness of our internal control over financial reporting as of December 31, 2021. The attestion report is included within the consolidated financial statements in this Annual Report on Form 20-F.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
Changes in Internal Controls over Financial Reporting
Based on the evaluation as at December 31, 2021, management, including our principal executive officer and principal financial officer, have concluded that there were no material changes in the design of internal controls from the last annual reporting date of December 31, 2020.
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Item 16. (Reserved)
Item 16A. Audit Committee Financial Expert
The Board determined that Mr. Gary Robertson, Mr. Peter Bojtos, and Mr. Ronald Andrews are qualified as Audit Committee Financial Experts. Mr. Robertson, Mr. Bojtos, and Mr. Ronald Andrews are independent as determined by the NYSE American rules.
Item 16B. Code of Ethics
The Company has adopted a Code of Ethics that applies to all directors, officers, consultants and employees of the Company.
This Code of Ethics covers a wide range of financial and non-financial business practices and procedures. This Code of Ethics does not cover every issue that may arise, but it sets out basic principles to guide all executive and staff of the Company. If a law or regulation conflicts with a policy in this Code of Ethics, then personnel must comply with such law or regulation. If any person has any questions about this Code of Ethics or potential conflicts with a law or regulation, they should refer to the Company’s Whistleblower Policy.
All executive and staff should recognize that they hold an important role in the overall corporate governance and ethical standards of the Company. Each person is capable and empowered to ensure that the Company’s, its shareholders’ and other stakeholders’ interests are appropriately balanced, protected and preserved. Accordingly, the Code of Ethics provides principles to which all personnel are expected to adhere and advocate. The Code of Ethics embodies rules regarding individual and peer responsibilities, as well as responsibilities to the Company, the shareholders, other stakeholders, and the public generally.
A copy of the Code of Ethics and Whistleblower Policy has been filed as an exhibit with the SEC and are available at the Company’s website at www.avino.com. You may obtain a copy of the Code of Ethics and Whistleblower Policy upon request by contacting the Company’s Corporate Secretary at 570 Granville Street, Suite 900, Vancouver, British Columbia V6C 3P1, Canada.
Item 16C. Principal Accountant Fees and Services
The Company’s independent registered public accounting firm for the years ended December 31, 2021 and 2020 were Manning Elliott LLP, Chartered Professional Accountants.
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Audit Fees
The aggregate fees billed by Manning Elliott LLP for professional services rendered for the audit of the annual financial statements or services that are normally provided in connection with statutory and regulatory filings or engagements for the Company’s years ended December 31, 2021 and 2020, were C$375,000 and C$253,000, respectively.
Audit-Related Fees
The audit-related fees billed by Manning Elliott LLP for assurance and related services that are reasonably related to the performance of the audit or review for the Company’s years ended December 31, 2021 and 2020, were C$375,000 and C253,000, respectively, and consisted of travel and expenses.
Tax Fees
The tax fees billed by Manning Elliott LLP for the Company’s years ended December 31, 2021 and 2020, were Nil.
All Other Fees
The aggregate fees billed by Manning Elliott LLP for services other than the services reported above for the Company’s years ended December 31, 2021 and 2020, were C$68,512 and C$37,520 respectively, and consisted of fees related to the Company’s securities registration documents.
The Audit Committee approved 100% of the fees paid to the principal accountant for audit-related, tax and other fees in the fiscal years 2021 and 2020. The Audit Committee pre-approves all non-audit services to be performed by the auditor in accordance with the Audit Committee Charter.
There were no hours expended on the principal accountant’s engagement to audit the Company’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 16F. Changes in Registrant’s Certifying Accountant
Not applicable.
Item 16G. Corporate Governance
We are a foreign private issuer with our common shares listed on the NYSE American. Section 110 of the NYSE American Company Guide permits NYSE American to consider the laws, customs and practices of foreign private issuers like us in relaxing certain NYSE American corporate governance requirements, and to grant exemptions from NYSE American corporate governance requirements on these considerations. A company seeking relief under these provisions is required to provide written certification from independent local counsel that the non-complying practice is not prohibited by home country law. A description of the significant ways in which our governance practices different from those followed by domestic companies pursuant to NYSE American corporate governance standards is as follows:
Shareholder Approval Requirement: Sections 711-713 of the NYSE American Company Guide require shareholder approval prior to an issuance of securities in connection with: (i) the acquisition of the stock or assets of another company; (ii) equity-based compensation of officers, directors, employees or consultants; (iii) a change of control; and (iv) private placements. Under the laws of the British Columbia, Canada, we are not required to solicit shareholder approval of equity incentive plans, including those in which our officers or directors may participate; stock issuances that will result in a change in control; the issuance of our stock in related party transactions or other transactions in which we may issue 20% or more of our outstanding shares; or, below market issuances of 20% or more of our outstanding shares to any person. In connection with the La Preciosa Transaction, we did not seek shareholder approval for the issuance of common shares and warrants thereunder upon reliance that shareholder approval is not required under British Columbia law.
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In addition, as a foreign private issuer, and our equity securities are accordingly exempt from the proxy rules set forth in Sections 14(a), 14(b), 14(c) and 14(f) of the Exchange Act. We solicit proxies in accordance with our Memorandum and Articles of Association the applicable rules and regulations of British Columbia, Canada and the Toronto Stock Exchange.
The foregoing is consistent with the laws, customs and practices in British Columbia, Canada. In addition, we may from time-to-time seek relief from NYSE American corporate governance requirements on specific transactions under Section 110 of the NYSE American Company Guide by providing written certification from independent local counsel that the non-complying practice is not prohibited by our home country law.
Item 16H. Mine Safety Disclosure
Under Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and pursuant to this Item 16H, each operator of a coal or other mine is required to include disclosures regarding certain mine safety results in its periodic reports filed with the SEC. We do not own or operate any mines in the United States and, as a result, this information is not required.
Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable
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PART III
Item 17. Financial Statements
Not applicable.
Item 18. Financial Statements
The following financial statements pertaining to the Company are filed as part of this Annual Report:
Management’s Responsibility for Financial Reporting
Reports of Independent Registered Public Accounting Firm (Manning Elliott LLP, Vancouver, British Columbia; PCAOB ID #
Consolidated Statements of Financial Position as at December 31, 2021 and December 31, 2020
Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2021, 2020 and 2019
Consolidated Statements of Changes in Equity for the years ended December 31, 2021, 2020 and 2019
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019
Notes to the Consolidated Financial Statements
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Item 19. Exhibits
* Previously filed.
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AVINO SILVER GOLD MINES LTD.
Consolidated Financial Statements
For the years ended December 31, 2021, 2020 and 2019
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MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated financial statements of Avino Silver Gold Mines Ltd. (the “Company”) are the responsibility of the Company’s management. The consolidated financial statements are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and reflect management’s best estimates and judgments based on information currently available.
Management has developed and is maintaining a system of internal controls to ensure that the Company’s assets are safeguarded, transactions are authorized and properly recorded, and financial information is reliable.
The Board of Directors is responsible for ensuring that management fulfills its responsibilities. The Audit Committee reviews the results of the annual audit and reviews the consolidated financial statements prior to their submission to the Board of Directors for approval.
The consolidated financial statements as at December 31, 2021 and 2020, and for the years ended December 31, 2021, 2020 and 2019, have been audited by Manning Elliott LLP, an independent registered public accounting firm, and their report outlines the scope of their examination, and gives their opinion on the consolidated financial statements.
“David Wolfin” | “Nathan Harte” |
David Wolfin | Nathan Harte, CPA |
President CEO | Chief Financial Officer |
March 16, 2022 | March 16, 2022 |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
To the Shareholders and the Board of Directors of
Avino Silver Gold Mines Ltd.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated financial statements of Avino Silver Gold Mines Ltd. and its subsidiaries (together, the “Company”), which comprise the consolidated statements of financial position as at December 31, 2021 and 2020, and the consolidated statements of operations and comprehensive income (loss), consolidated statements of changes in equity and consolidated statements of cash flows for the years ended December 31, 2021, 2020 and 2019, and the related notes, including a summary of significant accounting policies and other explanatory information (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2021 and 2020, and its financial performance and its cash flows for the years ended December 31, 2021, 2020 and 2019 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 16, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement, whether due to fraud or error. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a reasonable basis for our audit opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
| 80 |
Assessment of the Existence of Impairment Indicators for the Avino Mine
As described in Note 11 to the consolidated financial statements the carrying amount of the plant, equipment and Avino mining properties is $35,675,000 as at December 31, 2021. Management applies significant judgement to assess plant, equipment and Avino mining properties (collectively the “Avino Mine”) for the existence of impairment indicators that could give rise to the requirement to conduct a formal impairment test. Management considers both external and internal sources of information in assessing whether there are any indictors of impairment as disclosed in Note 2 (iv). External sources of information considered by management include changes in the market, economic and legal environments, in which the Company operates, that are not within its control and that affect the recoverable amount of the Avino Mine. Internal sources of information that management considers include the manner in which the Avino Mine is being used, or is expected to be used, and indications of economic performance of the assets.
We have determined that performing procedures relating to the assessment of the existence of impairment indicators for the Avino Mine is a critical audit matter primarily due to the application of judgment by management in assessing specific factors such as (a) significant adverse changes in the economic or legal environment of operations, (b) significant changes with an adverse effect on the use of the asset, (c) current period cash flow or operating losses, combined with a history of losses or a forecast of continuing losses associated with the use of the assets. This in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures to evaluate audit evidence relating to the judgements made by management in their assessment of indicators of impairment that could give rise to the requirement to conduct a formal impairment test.
Addressing the critical audit matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. Our audit procedures included amongst others, (a) a review of management’s assessment of the existence of impairment indicators of the Avino Mine (b) completion of our own assessment of impairment indicators in accordance with IAS 36 Impairment of Assets, (c) a review of matters that impact the Company’s ability to continue mining operations, (d) evaluated whether there were adverse economic changes in metal prices by considering external observable market prices, (e) compared the current performance to the Company’s historical mining results associated with the assets, (f) compared management’s mine plans to data in the Company’s resource estimate which was prepared by a specialist.
/s/
CHARTERED PROFESSIONAL ACCOUNTANTS
March 16, 2022
We have served as the Company’s auditor since 2007.
| 81 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
To the Shareholders and the Board of Directors of
Avino Silver Gold Mines Ltd.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Avino Silver Gold Mines Ltd. and subsidiaries (the “Company") as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as at and for the year ended December 31, 2021, of the Company and our report dated March 16, 2022, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Manning Elliott LLP
CHARTERED PROFESSIONAL ACCOUNTANTS
Vancouver, British Columbia, Canada
March 16, 2022
82 |
AVINO SILVER GOLD MINES LTD.
Consolidated Financial Statements
For the years ended December 31, 2021, 2020 and 2019
AVINO SILVER GOLD MINES LTD. Consolidated Statements of Financial Position (Expressed in thousands of US dollars) |
|
| Note |
|
| December 31, 2021 |
|
| December 31, 2020 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
| ||
Current assets |
|
|
|
|
|
|
|
|
| ||
Cash |
|
|
|
| $ |
|
| $ |
| ||
Amounts receivable |
|
|
|
|
|
|
|
|
| ||
Taxes recoverable |
| 6 |
|
|
|
|
|
|
| ||
Prepaid expenses and other assets |
|
|
|
|
|
|
|
|
| ||
Inventory |
| 7 |
|
|
|
|
|
|
| ||
Total current assets |
|
|
|
|
|
|
|
|
| ||
Exploration and evaluation assets |
| 9 |
|
|
|
|
|
|
| ||
Plant, equipment and mining properties |
| 11 |
|
|
|
|
|
|
| ||
Long-term investments |
| 8 |
|
|
|
|
|
|
| ||
Other assets |
|
|
|
|
|
|
|
|
| ||
Total assets |
|
|
|
| $ |
|
| $ |
| ||
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
|
| $ |
|
| $ |
| ||
Amounts due to related parties |
| 12(b) |
|
|
|
|
|
| |||
Taxes payable |
|
|
|
|
|
|
|
|
| ||
Current portion of term facility |
| 13 |
|
|
|
|
|
|
| ||
Current portion of equipment loans |
|
|
|
|
|
|
|
|
| ||
Current portion of finance lease obligations |
|
|
|
|
|
|
|
|
| ||
Total current liabilities |
|
|
|
|
|
|
|
|
| ||
Finance lease obligations |
|
|
|
|
|
|
|
|
| ||
Warrant liability |
| 14 |
|
|
|
|
|
|
| ||
Reclamation provision |
| 15 |
|
|
|
|
|
|
| ||
Deferred income tax liabilities |
|
|
|
|
|
|
|
|
| ||
Total liabilities |
|
|
|
|
|
|
|
|
| ||
EQUITY |
|
|
|
|
|
|
|
|
|
|
|
Share capital |
| 16 |
|
|
|
|
|
|
| ||
Equity reserves |
|
|
|
|
|
|
|
|
| ||
Treasury shares ( |
|
|
|
|
| ( | ) |
|
| ( | ) |
Accumulated other comprehensive loss |
|
|
|
|
| ( | ) |
|
| ( | ) |
Accumulated deficit |
|
|
|
|
| ( | ) |
|
| ( | ) |
Total equity |
|
|
|
|
|
|
|
|
| ||
Total liabilities and equity |
|
|
|
| $ |
|
| $ |
| ||
Commitments – Note 19
Approved by the Board of Directors on March 16, 2022:
| Gary Robertson |
| Director | David Wolfin |
| Director |
The accompanying notes are an integral part of the consolidated financial statements
| -1- |
AVINO SILVER GOLD MINES LTD. Consolidated Statements of Operations and Comprehensive Income (Loss) (Expressed in thousands of US dollars) |
|
| Note |
|
| 2021 |
|
| 2020 |
|
| 2019 |
| ||||
Revenue from mining operations |
|
| 17 |
|
| $ |
|
| $ |
|
| $ |
| |||
Cost of sales |
|
| 17 |
|
|
|
|
|
|
|
|
|
| |||
Mine operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses |
|
| 19 |
|
|
|
|
|
|
|
|
|
| |||
Share-based payments |
|
| 16 |
|
|
|
|
|
|
|
|
|
| |||
Loss before other items |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Unrealized gain (loss) on long-term investments |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
| |
Fair value adjustment on warrant liability |
|
| 14 |
|
|
|
|
|
| ( | ) |
|
|
| ||
Realized loss on warrants exercised |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
| |
Foreign exchange loss |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Project evaluation expenses |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||
Finance cost |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Accretion of reclamation provision |
|
| 15 |
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Interest expense |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Loss from continuing operations before income taxes |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current income tax expense |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Deferred income tax (expense) recovery |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||
Income tax (expense) recovery |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||
Net loss from continuing operations |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Loss from discontinued operations and on disposal |
|
| 5 |
|
|
|
|
|
| ( | ) |
|
| ( | ) | |
Net loss |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation differences |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
| |
Reclassification of foreign exchange on translation into net loss on sale of discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) | ||
Total comprehensive loss |
|
|
|
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Loss per share from continuing operations |
|
| 16(e) |
|
|
|
|
|
|
|
|
|
|
|
| |
Basic |
|
|
|
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Diluted |
|
|
|
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Loss per share |
|
| 16(e) |
|
|
|
|
|
|
|
|
|
|
|
| |
Basic |
|
|
|
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Diluted |
|
|
|
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Weighted average number of common shares outstanding |
|
| 16(e) |
|
|
|
|
|
|
|
|
|
|
|
| |
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
The accompanying notes are an integral part of the consolidated financial statements
| -2- |
AVINO SILVER GOLD MINES LTD. Consolidated Statements of Changes in Equity (Expressed in thousands of US dollars) |
|
| Note |
|
| Number of Common Shares |
|
| Stock Capital Amount |
|
| Equity Reserves |
|
| Treasury Stock |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Accumulated Deficit |
|
| Total Equity |
| |||||||
Balance, January 1, 2019 |
|
|
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ |
| ||||
Common shares issued for cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokered public offerings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Less: Issuance costs |
|
|
|
|
| - |
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) | ||||
At the market issuances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Less: Issuance costs |
|
|
|
|
| - |
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) | ||||
Options cancelled or expired |
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Carrying value of RSUs exercised |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fair value of warrants issued |
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Shares to be issued |
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Share-based payments |
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net loss for the year |
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | ||||
Currency translation differences |
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance, January 31, 2019 |
|
|
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ |
| ||||
Common shares issued for cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At the market issuances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Exercise of warrants |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Exercise of options |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Common shares issued for services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Issuance costs |
|
|
|
|
| - |
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) | ||||
Options cancelled or expired |
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Carrying value of RSUs exercised |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Share-based payments |
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net loss for the year |
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | ||||
Currency translation differences |
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||||
Balance, December 31, 2020 |
|
|
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ |
| ||||
Common shares issued for cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At the market issuances |
| 16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Exercise of warrants |
| 16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Exercise of options |
| 16 |
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Issuance costs |
| 16 |
|
|
| - |
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) | ||||
Options cancelled or expired |
| 16 |
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Carrying value of RSUs exercised |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Share-based payments |
| 16 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net loss for the year |
| 16 |
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| - |
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Currency translation differences |
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| - |
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Balance, December 31, 2021 |
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| $ |
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| $ |
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| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ |
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The accompanying notes are an integral part of the consolidated financial statements
| -3- |
AVINO SILVER GOLD MINES LTD. Consolidated Statements of Cash Flows (Expressed in thousands of US dollars) |
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| 2021 |
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| 2020 |
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| 2019 |
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Cash generated by (used in): |
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Operating Activities |
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Net loss |
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| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Adjustments for non-cash items: |
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Deferred income tax expense (recovery) |
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| ( | ) |
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| ( | ) | |
Depreciation and depletion |
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Inventory net realizable value adjustment |
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Accretion of reclamation provision |
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Unrealized loss (gain) on investments |
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Unrealized foreign exchange loss (gain) |
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Unwinding of fair value adjustment on term facility |
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Fair value adjustment on warrant liability |
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Realized loss on warrants exercised |
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Loss from discontinued operations and on disposal |
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| - |
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Share-based payments |
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Net change in non-cash working capital items |
| 20 |
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| ( | ) |
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Financing Activities |
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Shares and units issued for cash, net of issuance costs |
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Proceeds from option exercise |
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Proceeds from warrant exercise |
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Term facility payments |
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| ( | ) |
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| ( | ) |
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| ( | ) |
Finance lease payments |
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| ( | ) |
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| ( | ) |
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| ( | ) |
Equipment loan payments |
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Investing Activities |
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Exploration and evaluation expenditures |
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| ( | ) |
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| ( | ) |
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| ( | ) |
Additions to plant, equipment and mining properties |
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Proceeds from sale of long-term investments |
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Cash proceeds from sale of discontinued operations |
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Cash disposed of in discontinued operations |
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Redemption of reclamation bonds |
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Change in cash |
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Effect of exchange rate changes on cash |
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| ( | ) | |
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Cash, Beginning |
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Cash, Ending |
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| $ |
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| $ |
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| $ |
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Supplementary Cash Flow Information (Note 20)
The accompanying notes are an integral part of the consolidated financial statements
| -4- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
1. | NATURE OF OPERATIONS |
|
|
| Avino Silver Gold Mines Ltd. (the “Company” or “Avino”) was incorporated in 1968 under the laws of the Province of British Columbia, Canada. The Company is engaged in the production and sale of silver, gold, and copper and the acquisition, exploration, and advancement of mineral properties.
The Company’s head office and principal place of business is Suite 900, 570 Granville Street, Vancouver, BC, Canada. The Company is a reporting issuer in Canada and the United States, and trades on the Toronto Stock Exchange (“TSX”), the NYSE American, and the Frankfurt and Berlin Stock Exchanges.
The Company operates the Avino Mine which produces copper, silver and gold at the historic Avino property in the state of Durango, Mexico. The Company also owns interests in mineral properties located in British Columbia and Yukon, Canada.
Risks associated with Public Health Crises, including COVID-19
The Company's business, operations and financial condition could be materially adversely affected by the outbreak of epidemics, pandemics or other health crises, such as the outbreak of COVID-19 that was designated as a pandemic by the World Health Organization on March 11, 2020. The international response to the spread of COVID-19 has led to significant restrictions on travel, temporary business closures, quarantines, global stock market volatility and a general reduction in consumer activity. Such public health crises can result in operating, supply chain and project development delays and disruptions, global stock market and financial market volatility, declining trade and market sentiment, reduced movement of people and labour shortages, and travel and shipping disruption and shutdowns, including as a result of government regulation and prevention measures, or a fear of any of the foregoing, all of which could affect commodity prices, interest rates, credit risk and inflation. In addition, the current COVID-19 pandemic, and any future emergence and spread of similar pathogens could have an adverse impact on global economic conditions which may adversely impact the Company's operations, and the operations of suppliers, contractors and service providers, including smelter and refining service providers, and the demand for the Company's production.
The Company may experience business interruptions, including suspended (whether government mandated or otherwise) or reduced operations relating to COVID-19 and other such events outside of the Company's control, which could have a material adverse impact on its business, operations and operating results, financial condition and liquidity.
As at the date of the consolidated financial statements, the duration of the business disruptions internationally and related financial impact of COVID-19 cannot be reasonably estimated. It is unknown whether and how the Company may be affected if the pandemic persists for an extended period of time. In particular, the region in which we operate may not have sufficient public infrastructure to adequately respond or efficiently and quickly recover from such event, which could have a materially adverse effect on the Company's operations. The Company's exposure to such public health crises also includes risks to employee health and safety. Should an employee, contractor, community member or visitor become infected with a serious illness that has the potential to spread rapidly, this could place the Company's workforce at risk. |
| -5- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
2. | BASIS OF PRESENTATION |
|
|
| Statement of Compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
Basis of Presentation
These consolidated financial statements are expressed in US dollars and have been prepared on a historical cost basis except for financial instruments that have been measured at fair value. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting on a going concern basis. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements as if the policies have always been in effect.
Foreign Currency Translation
Functional presentation currencies
The functional currency of the Company is the Canadian dollar. The functional currency of the Company’s Mexican subsidiaries is the US dollar, which is determined to be the currency of the primary economic environment in which the subsidiaries operate.
Foreign currency transactions
Transactions in currencies other than the functional currency are recorded at the rates of exchange prevailing on the dates of the transactions. At each financial position reporting date, monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing at the date of the statement of financial position. Non-monetary items that are measured in terms of historical cost in a foreign currency are not re-translated.
Foreign operations
Subsidiaries that have functional currencies other than the US dollar translate their statement of operations items at the average rate during the year. Assets and liabilities are translated at exchange rates prevailing at the end of each reporting period. Exchange rate variations resulting from the retranslation at the closing rate of the net investment in these subsidiaries, together with differences between their statement of operations items translated at actual and average rates, are recognized in accumulated other comprehensive income (loss). On disposition or partial disposition of a foreign operation, the cumulative amount of related exchange difference is recognized in the statement of operations.
Significant Accounting Judgments and Estimates
The Company’s management makes judgments in its process of applying the Company’s accounting policies to the preparation of its consolidated financial statements. In addition, the preparation of financial data requires that the Company’s management make assumptions and estimates of the impacts on the carrying amounts of the Company’s assets and liabilities at the end of the reporting period from uncertain future events and on the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates as the estimation process is inherently uncertain. Estimates are reviewed on an ongoing basis based on historical experience and other factors that are considered to be relevant under the circumstances. Revisions to estimates and the resulting impacts on the carrying amounts of the Company’s assets and liabilities are accounted for prospectively. |
| -6- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
| a) | Critical judgments exercised by management in applying accounting policies that have the most significant effect on the amounts presented in these consolidated financial statements are as follows: |
| i. | Economic recoverability and probability of future economic benefits from exploration and evaluation costs |
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|
|
|
| Management has determined that mine and camp, exploratory drilling, and other exploration and evaluation-related costs that were capitalized have future economic benefits and are economically recoverable. Management uses several criteria in its assessments of economic recoverability and probability of future economic benefits including geologic and metallurgic information, scoping studies, accessible facilities, existing permits, and mine plans. |
| ii. | Commencement of production at levels intended by management |
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|
|
|
| Prior to reaching production levels intended by management, costs incurred are capitalized as part of the costs of related exploration and evaluation assets, and proceeds from concentrate sales are offset against costs capitalized. Depletion of capitalized costs for mining properties and depreciation of plant and equipment begin when operating levels intended by management have been reached. Management considers several factors in determining when a mining property has reached the intended production levels, including production capacity, recoveries, and number of uninterrupted production days.
The basis for achievement of production levels intended by management as indicated by technical feasibility and commercial viability is generally established with proven reserves based on a NI 43-101-compliant technical report or a comparable resource statement and feasibility study, combined with pre-production operating statistics and other factors. In cases where the Company does not have a 43-101-compliant reserve report, on which to base a production decision, the technical feasibility and commercial viability of extracting a mineral resource are considered in light of additional factors including but not limited to: |
| · | Acquisition and installation of all critical capital components to achieve desired mining and processing results has been completed. Capital components have been acquired directly and are also available on an as-needed basis from the underground mining contractor; |
| · | The necessary labour force, including mining contractors, has been secured to mine and process at planned levels of output; |
| · | The mill has consistently processed at levels above design capacity and budgeted production levels with consistent recoveries and grades; and, |
| · | Establishing sales agreements with respect to the sale of concentrates. |
|
| When technical feasibility and commercial viability are considered demonstrable according to the above criteria and other factors, the Company performs an impairment assessment and records an impairment loss, if any, before reclassifying exploration and evaluation costs to plant, equipment, and mining properties. |
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| iii. | Functional currency |
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|
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| The functional currency for the Company and its subsidiaries is the currency of the primary economic environment, in which the entity operates. The Company has determined the functional currency of the Company to be the Canadian dollar. The Company has determined the functional currency of its Mexican subsidiaries to be the US dollar. Determination of functional currency may involve certain judgments to determine the primary economic environment. The Company reconsiders the functional currency of its entities, if there is a change in events and conditions, which determine the primary economic environment. |
| -7- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
| b) | Significant assumptions about the future and other sources of estimation uncertainty that management has made at the consolidated statement of financial position date that could result in a material adjustment to the carrying amounts of assets and liabilities in the event that actual results differ from assumptions made relate to, but are not limited to, the following: |
| i. | Stockpile and concentrate inventory valuations |
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|
|
| Concentrate and stockpile mineralized material are valued at the lower of average cost or net realizable value. The assumptions used in the valuation of concentrate and stockpile mineralized material include estimates of copper, silver, and gold contained in the stockpiles and finished goods assumptions for the amount of copper, silver, and gold that is expected to be recovered from the concentrate. If these estimates or assumptions prove to be inaccurate, the Company could be required to write down the recorded value of its concentrate and stockpile mineralized material inventory, which would result in an increase in the Company’s expenses and a reduction in its working capital. |
| ii. | Estimated reclamation provisions |
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|
|
| The Company’s provision for reclamation represents management’s best estimate of the present value of the future cash outflows required to settle estimated reclamation and closure costs at the Avino and San Gonzalo properties. The provision reflects estimates of future costs, inflation, foreign exchange rates and assumptions of risks associated with the future cash outflows, and the applicable risk-free interest rates for discounting the future cash outflows. Changes in the above factors could result in a change to the provision recognized by the Company.
Changes to reclamation and closure cost obligations are recorded with a corresponding change to the carrying amounts of the related exploration and evaluation assets or mining properties. Adjustments to the carrying amounts of related mining properties result in a change to future depletion expense. |
| iii. | Valuation of share-based payments and warrants |
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|
|
| The Company uses the Black-Scholes Option Pricing Model for valuation of share-based payments and warrants. Option pricing models require the input of subjective assumptions including expected price volatility, interest rate, and forfeiture rate. Changes in the input assumptions can materially affect fair value estimates and the Company’s net income or loss and its equity reserves. Warrant liabilities are accounting for as derivate liabilities (see Note 16). |
| iv. | Impairment of plant, equipment and mining properties, and exploration and evaluation assets |
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|
| Management considers both external and internal sources of information in assessing whether there are any indications that the Company’s plant, equipment, and mining properties, and exploration and evaluation assets are impaired. External sources of information management considers include changes in the market, economic and legal environments, in which the Company operates, that are not within its control and that affect the recoverable amount of its plant, equipment, and mining properties. Internal sources of information that management considers include the manner in which mining properties and plant and equipment are being used, or are expected to be used, and indications of economic performance of the assets.
In determining the recoverable amounts of the Company’s plant, equipment and mining properties, management makes estimates of the undiscounted future pre-tax cash flows expected to be derived from the Company’s mining properties, and the appropriate discount rate. Reductions in metal price forecasts, increases in estimated future costs of production, increases in estimated future non expansionary capital expenditures, reductions in the amount of recoverable resources and exploration potential, and adverse current economic conditions are examples of factors that could result in a write down of the carrying amounts of the Company’s plant, equipment and mining properties, and exploration and evaluation assets. |
| -8- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
|
| Impairment
Based on the Company’s assessment with respect to possible indicators of impairment of its mineral properties, including the impact of COVID-19 on our operations and the prevailing market metals prices, the Company concluded that as of December 31, 2021, no impairment indicators were identified. |
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| v. | Depreciation rate for plant and equipment and depletion rate for mining properties |
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| Depreciation and depletion expenses are allocated based on estimates for useful lives of assets. Should the asset life, depletion rates, or depreciation rates differ from the initial estimate, the revised life or rate would be reflected prospectively through income or loss. A change in the mineral resource estimate may impact depletion expense on a prospective basis. |
| vi. | Recognition and measurement of deferred tax assets and liabilities |
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|
| Actual amounts of income tax expense are not final until tax returns are filed and accepted by the relevant authorities. This occurs subsequent to the issuance of the consolidated financial statements and the final determination of actual amounts may not be completed for a number of years. Therefore, tax assets and liabilities and net income in subsequent periods will be affected by the amount that estimates differ from the final tax return. Estimates of future taxable income are based on forecasted cash flows from operations and the application of existing tax laws in each jurisdiction. Forecasted cash flows from operations are based on projections internally developed and reviewed by management. Weight is attached to tax planning opportunities that are within the Company’s control, and are feasible and implementable without significant obstacles. The likelihood that tax positions taken will be sustained upon examination by applicable tax authorities is assessed based on individual facts and circumstances of the relevant tax position evaluated in light of all available evidence. Where applicable tax laws and regulations are either unclear or subject to ongoing varying interpretations, it is reasonably possible that changes in these estimates can occur that could materially affect the amounts of deferred tax assets and liabilities. |
| Basis of Consolidation |
|
|
| The audited consolidated financial statements include the accounts of the Company and its Mexican subsidiaries as follows: |
Subsidiary |
| Ownership Interest |
| Jurisdiction |
| Nature of Operations |
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| -9- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
| Intercompany balances and transactions, including unrealized income and expenses arising from intercompany transactions, are eliminated in preparing the audited consolidated financial statements. |
3. | SIGNIFICANT ACCOUNTING POLICIES |
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| Exploration and evaluation assets and development costs |
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The Company capitalizes all costs relating to the acquisition, exploration and evaluation of mineral claims. Expenditures incurred before the Company has obtained the legal rights to explore a specific area are expensed. The Company’s capitalized exploration and evaluation costs are classified as intangible assets. Such costs include, but are not limited to, certain camp costs, geophysical studies, exploratory drilling, geological and sampling expenditures, and depreciation of plant and equipment during the exploration stage. Costs not directly attributable to exploration and evaluation activities, including general administrative overhead costs, are expensed in the period in which they occur. Proceeds from the sale of mineral products or farm outs during the exploration and evaluation stage are deducted from the related capitalized costs.
The carrying values of capitalized amounts are reviewed annually, or when indicators of impairment are present. In the case of undeveloped properties, there may be only inferred resources to allow management to form a basis for the impairment review. The review is based on the Company’s intentions for the development of such properties. If a mineral property does not prove to be viable, all unrecoverable costs associated with the property are charged to the consolidated statement of comprehensive income (loss) at the time the determination is made.
When the technical feasibility and commercial viability of extracting mineral resources have been demonstrated, exploration and evaluation costs are assessed for impairment, reclassified to mining properties and become subject to depletion. Management considers the technical feasibility and commercial viability of extracting a mineral resource to be demonstrable upon the completion of a positive feasibility study and the establishment of mineral reserves. For certain mineral projects, management may determine the completion of a feasibility study to be cost prohibitive, unnecessary or to present undue risk to the structural integrity of the ore body. Under such circumstances, management considers technical feasibility to be demonstrable when the Company has obtained the necessary environmental and mining permits, land surface and mineral access rights, and the mineral project can be physically constructed and operated in a technically sound manner to produce a saleable mineral product. In assessing whether commercial viability is demonstrable, management considers if its internal economic assessment indicates that the mineral project can be mined to generate a reasonable return on investment for the risk undertaken, and markets or long-term contracts for the product exist.
Mine development costs are capitalized until the mineral property is capable of operating in the manner intended by management. The Company evaluates the following factors in determining whether a mining property is capable of operating in the manner intended by management: |
| · | The completion and assessment of a reasonable commissioning period of the mill and mining facilities; |
| · | Consistent operating results are achieved during the test period; |
| · | Existence of clear indicators that operating levels intended by management will be sustainable for the foreseeable future; |
| · | Plant / mill has reached a pre-determined percentage of design capacity; |
| · | Adequate funding is available and can be allocated to the operating activities; and, |
| · | Long term sales arrangements have been secured. |
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|
|
| The carrying values of capitalized development costs are reviewed annually, or when indicators are present, for impairment. | |
| -10- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
| Plant, equipment and mining properties |
| Upon demonstrating the technical feasibility and commercial viability of extracting mineral resources, all expenditures incurred to that date for the mine are reclassified to mining properties. Expenditures capitalized to mining properties include all costs related to obtaining or expanding access to resources including extensions of the haulage ramp and installation of underground infrastructure, and the estimated reclamation provision. Expenditures incurred with respect to a mining property are capitalized when it is probable that additional future economic benefits will flow to the Company. Otherwise, such expenditures are classified as a cost of sales. |
|
|
| Plant and equipment are recorded at historical cost less accumulated depreciation and any accumulated impairment losses. Historical costs include expenditures that are directly attributable to bringing the asset to a location and condition necessary to operate in a manner intended by management. Such costs are accumulated as construction in progress until the asset is available for use, at which point the asset is classified as plant, equipment and mining properties and depreciation commences. |
|
|
| After the date that management’s intended production levels have been achieved, mining properties are depleted using the straight-line method over the estimated remaining life of the mine. The Company estimates the remaining life of its producing mineral properties on an annual basis using a combination of quantitative and qualitative factors including historical results, mineral resource estimates, and management’s intent to operate the property. |
|
|
| The Company does not have sufficient reserve information to form a basis for the application of the units-of-production method for depreciation and depletion. |
|
|
| As at December 31, 2021 and 2020, the Company estimated a remaining mine life for the Avino Mine of |
|
|
| Accumulated mill, machinery, plant facilities, and certain equipment are depreciated using the straight-line method over their estimated useful lives, not to exceed the life of the mine for any assets that are inseparable from the mine. When parts of an item of plant and equipment have different useful lives, they are accounted for as separate items (or components) of plant and equipment. |
| -11- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
| Plant and equipment are depreciated using the following annual rates and methods: |
Office equipment, furniture, and fixtures | |
Computer equipment | |
Mine machinery and transportation equipment | |
Mill machinery and processing equipment | |
Buildings |
| Impairment
At each financial position reporting date, the carrying amounts of the Company’s assets are reviewed to determine whether there is any indication that those assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment, if any. Where the asset does not generate cash flows that are independent from other assets, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs.
An asset’s recoverable amount is the higher of fair value less costs to sell and value in use. Fair value is determined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset or cash generating unit is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and the impairment loss is recognized in profit or loss for the period.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, provided the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.
Leases
Leases in which the Company assumes substantially all risks and rewards of ownership are classified as finance leases. Assets held under finance leases are recognized at the lower of the fair value and present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses. The corresponding liability is recognized as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation to achieve a constant rate of interest on the remaining liability. Finance charges are recorded as a finance expense within profit and loss, unless they are attributable to qualifying assets, in which case they are capitalized.
Operating lease payments are recognized on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed, in which case that systematic basis is used. Operating lease payments are recorded within profit and loss unless they are attributable to qualifying assets, in which case they are capitalized.
Inventory
Material extracted from the Company's mine is classified as either process material or waste. Process material represents mineralized material that, at the time of extraction, the Company expects to process into a saleable form and sell at a profit, while waste is considered uneconomic to process and its extraction cost is included in direct mining costs. Raw materials are comprised of process material stockpiles. Process material is accumulated in stockpiles that are subsequently processed into bulk copper, silver, and gold concentrate in a saleable form. The Company has bulk copper, silver, and gold concentrate inventory in saleable form that has not yet been sold. Mine operating supplies represent commodity consumables and other raw materials used in the production process, as well as spare parts and other maintenance supplies that are not classified as capital items. |
| -12- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
| Inventories are valued at the lower of cost and net realizable value (“NRV”). Cost is determined on a weighted average basis and includes all costs incurred, based on normal production capacity, in bringing each product to its present location and condition. Cost of inventories comprises direct labor, materials and contractor expenses, depletion and depreciation on mining properties, plant and equipment, and an allocation of mine site costs. As mineralized material is removed for processing, costs are removed based on the average cost per tonne in the stockpile. Stockpiled process material tonnages are verified by periodic surveys.
NRV of mineralized material is determined with reference to relevant market prices less applicable variable selling expenses and costs to bring the inventory into its saleable form. NRV of materials and supplies is generally calculated by reference to salvage or scrap values when it is determined that the supplies are obsolete. NRV provisions are recorded within cost of sales in the consolidated statement of operations, and are reversed to reflect subsequent recoveries where the inventory is still on hand.
Revenue from Contracts with Customers
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue and costs to sell can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, and other sales tax or duty.
Performance Obligations
Based on the criteria outlined in IFRS 15, the Company applied significant judgment in determining that the primary performance obligation relating to its sales contracts is the delivery of concentrates. Shipping and insurance services arranged by the Company for concentrate sales that occur after the transfer of control are also considered performance obligations.
Transfer of Control
Based on the criteria outlined in IFRS 15, the Company applied significant judgment in determining when the transfer of control occurs. Management based its assessment on a number of indicators of control, which include but are not limited to, whether the Company has the present right of payment and whether the physical possession of the goods, significant risks and rewards, and legal title have been transferred to the customer.
Provisional Pricing
Based on the criteria outlined in IFRS 15, the Company applied significant judgment in determining variable consideration. The Company identified two provisional pricing components in concentrate sales, represents variable consideration in the form of a) adjustments between original and final assay results relating to the quantity and quality of concentrate shipments, as well as b) pricing adjustments between provisional and final invoicing based on market prices for base and precious metals.
Based on the Company’s historical accuracy in the assay process, as evidenced by the negligible historical adjustments relating to assay differences, the Company concluded the variability in consideration caused by the assaying results is negligible. The Company does not expect a significant amount of reversal related to assaying differences. The Company records revenues based on provisional invoices based on quoted market prices of the London Bullion Market Association and the London Metal Exchange during the quotation period outlined in the concentrate sales agreement. The Company applied judgment to determine the amount of variable consideration to be recognized during the period for which the likelihood of significant reversal is low.
|
| -13- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
| Financial Instruments
All financial assets and financial liabilities are initially recorded on the Company’s consolidated statement of financial position when the Company becomes a party to the contractual provisions of the instrument. All financial asset and liabilities are initially recorded at fair value, net of attributable transaction costs, except for those classified as fair value through profit or loss (“FVTPL”). Subsequent measurement of financial assets and financial liabilities depends on the classifications of such assets and liabilities.
Classification – financial assets
Amortized cost:
Financial assets that are held within a business model whose objective is to hold financial assets in order to collect contractual cash flows, and that the contractual terms of the financial assets give rise on specified date to cash flows that are solely payments of principal and interest on the principal amount outstanding, are measured subsequent to initial recognition at amortized cost.
The amortized cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. Interest income is recognized using the effect interest method, and is recognized in Interest and other income, on the consolidated statements of operations and comprehensive income (loss)
The Company financial assets at amortized costs include its cash, amounts receivable not related to sales of concentrate, investments (short-term), and reclamation bonds.
Fair value through other comprehensive income (“FVTOCI”)
Financial assets that are held within a business model whose objective is to hold financial assets in order to both collect contractual cash flows and selling financial assets, and that the contractual terms of the financial assets give rise on specified date to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Upon initial recognition of equity securities, the Company may make an irrevocable election (on an instrument-by-instrument basis) to designate its equity securities that would otherwise be measured at FVTPL to present subsequent changes in fair value in other comprehensive income. Designation at FVTOCI is not permitted if the equity investment is held for trading or if it is contingent consideration recognized by an acquirer in a business combination. Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognized in other OCI. The cumulative gain or loss is not reclassified to profit or loss on disposal of the instrument; instead, it is transferred to retained earnings.
The Company currently has no financial assets designated as FVTOCI.
Fair value through profit or loss (“FVTPL”)
By default, all other financial assets are measured subsequently at FVTPL, which includes amounts receivable from concentrate sales.
|
| -14- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
|
Financial liabilities that are not contingent consideration of an acquirer in a business combination, held for trading or designated as at FVTPL, are measured at amortized cost using the effective interest method.
Financial liabilities at amortized cost include accounts payable, amounts due to related parties, term facility, equipment loans, and finance lease obligations.
Financial liabilities classified FVTPL include financial liabilities held for trading and financial liabilities designated upon initial recognition as FVTPL. Fair value changes on financial liabilities classified as FVTPL are recognized in the consolidated statements of operations. The Company has classified share purchase warrants with an exercise price in US dollars (see Note 16) as financial liabilities at FVTPL. As these warrants are exercised, the fair value of the recorded warrant liability on date of exercise is included in share capital along with the proceeds from the exercise. If these warrants expire, the related decrease in warrant liability is recognized in the consolidated statements of operations and comprehensive income (loss).
The Company has no hedging arrangements and does not apply hedge accounting.
Impairment
The Company recognizes a loss allowance for expected credit losses on its financial assets when necessary. The amount of expected credit losses is updated at each reporting period to reflect changes in credit risk since initial recognition of the respective financial instruments.
Share capital | |
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| a) | Common shares |
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| Common shares are classified as equity. Transaction costs directly attributable to the issuance of common shares and equity warrants are recognized as a deduction from equity, net of any tax effects. Transaction costs directly attributable to derivative warrants are charged to operations as a finance cost. |
| b) | Repurchase of share capital (treasury shares) |
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| When share capital recognized as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognized as a deduction from equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity. When treasury shares are sold or reissued subsequently, the amount received is recognized as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to accumulated deficit. |
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| Share-based payment transactions
The Company’s share option plan and restricted share unit (“RSU”) plan allows directors, officers, employees, and consultants to acquire common shares of the Company.
The fair value of options granted is measured at fair value at the grant date based on the market value of the Company’s common shares on that date.
The fair value of equity-settled RSUs is measured at the grant date based on the market value of the Company’s common shares on that date, and each tranche is recognized using the graded vesting method over the period during which the RSUs vest. At each financial position reporting date, the amount recognized as an expense is adjusted to reflect the actual number of RSUs that are expected to vest.
All options and RSUs are recognized in the consolidated statements of operations and comprehensive income (loss) as an expense or in the consolidated statements of financial position as exploration and evaluation assets over the vesting period with a corresponding increase in equity reserves in the consolidated statements of financial position.
| |
| -15- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
| Reclamation and other provisions
Provisions are recognized where a legal or constructive obligation has been incurred as a result of past events, it is probable that an outflow of resources embodying economic benefit will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. If material, provisions are measured at the present value of the expenditures expected to be required to settle the obligation. The increase in any provision due to the passage of time is recognized as accretion expense.
The Company records the present value of estimated costs of legal and constructive obligations required to restore properties in the period in which the obligation is incurred. The nature of these restoration activities includes dismantling and removing structures, rehabilitating mines and restoration, reclamation, and re-vegetation of affected areas.
The fair value of the liability for a rehabilitation provision is recorded when it is incurred. When the liability is initially recognized, the present value of the estimated cost is capitalized by increasing the carrying amount of the related mining property or exploration and evaluation asset. Over time, the discounted liability is increased for the change in present value based on the discount rates that reflect current market assessments and the risks specific to the liability, which is accreted over time through periodic charges to income or loss. A revision in estimates or new disturbance will result in an adjustment to the provision with an offsetting adjustment to the mineral property or the exploration and evaluation asset. Additional disturbances, changes in costs, or changes in assumptions are recognized as adjustments to the corresponding assets and reclamation liabilities when they occur.
Earnings per share
The Company presents basic and diluted earnings per share data for its common shares, calculated by dividing the earnings attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the year. Diluted earnings per share is determined by adjusting the earnings attributable to common shareholders and the weighted average number of common shares outstanding for the effects of all potentially dilutive common shares.
Income taxes
Income taxes in the years presented are comprised of current and deferred tax. Income tax is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized as equity.
Deferred tax is recognized using the statement of financial position asset and liability method, which provides for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax recognized is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the consolidated statement of financial position date. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized.
Deferred tax assets and liabilities are not recognized if the temporary differences arise from the initial recognition of goodwill or an asset or liability in a transaction other than a business combination that affects neither accounting profit nor taxable profit.
|
| -16- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
4. | RECENT ACCOUNTING PRONOUNCEMENTS |
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|
| Application of new and revised accounting standards:
Interest Rate Benchmark Reform – Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
The amendments in Interest Rate Benchmark Reform – Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) introduce a practical expedient for modifications required by the reform, clarify that hedge accounting is not discontinued solely because of the IBOR reform, and introduce disclosures that allow users to understand the nature and extent of risks arising from the IBOR reform to which the entity is exposed to and how the entity manages those risks as well as the entity’s progress in transitioning from IBORs to alternative benchmark rates, and how the entity is managing this transition.
The amendments were applied effective January 1, 2021, and did not have a material impact on the Company’s financial statements.
Future Changes in Accounting Policies Not Yet Effective as at December 31, 2021:
Property, Plant and Equipment — Proceeds before Intended Use (Amendments to IAS 16)
The amendments prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognizes the proceeds from selling such items, and the cost of producing those items, in profit or loss. The amendments are applied on or after the first annual reporting period beginning on or after January 1, 2022, with early application permitted. The amendments are applied retrospectively, but only to items of property, plant and equipment that are brought to the location and condition necessary for them to be capable of operating in the manner intended by management on or after the beginning of the earliest period presented in the financial statements in which the Company first applies the amendments. The Company will recognize the cumulative effect of initially applying the amendments as an adjustment to the opening balance of retained earnings at the beginning of that earliest period presented. This amendment will impact the Company’s future accounting for proceeds from mineral sales prior to reaching commercial production at levels intended by management, however there is no impact upon adoption on January 1, 2022.
Classification of Liabilities as Current or Non-Current (Amendments to IAS 1)
The amendments aim to promote consistency in applying the requirements by helping companies determine whether, in the statement of financial position, debt and other liabilities with an uncertain settlement date should be classified as current (due or potentially due to be settled within one year) or non-current. The amendments are applied on or after the first annual reporting period beginning on or after January 1, 2023, with early adoption permitted. This amendment is not expected to have a material impact on the Company’s financial statements. |
| -17- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
5. | DISPOSITION OF DISCONTINUED OPERATIONS – BRALORNE GOLD MINES LTD. |
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|
| On December 13, 2019, the Company completed the sale of its
The consideration included: |
| · | C$ |
| · | The issuance of |
| · | The issuance of |
| The sale includes the Bralorne claims, as well as nine mineral claims covering approximately 2,114 hectares in the Lillooet Mining Division of British Columbia, known as the BRX Property.
The Company also received future consideration of a $
The Company recognized a loss on disposition, net of tax, calculated as follows: |
Cash proceeds |
| $ |
| |
Talisker shares |
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| |
Talisker warrants |
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Total proceeds |
| $ |
| |
Net assets sold and derecognized: |
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Cash |
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Other current assets |
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Exploration and evaluation assets |
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Plant and equipment |
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Other long-term assets |
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Current portion of finance lease obligations and equipment loans |
|
| ( | ) |
Non-current portion of finance lease obligations and equipment loans |
|
| ( | ) |
Site restoration obligation |
|
| ( | ) |
Foreign currency translation adjustments |
|
| ( | ) |
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| |
Loss on disposition before selling costs |
|
| ( | ) |
Selling costs |
|
| ( | ) |
Loss on disposition, net |
|
| ( | ) |
| -18- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
| As a result of the sale, the comparative net income (loss) for the current period, as well as previous two years, have been reclassified from continuing operations to discontinued operations: |
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| 2021 |
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| 2020 |
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| 2019 |
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Revenue from mining operations |
| $ |
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| $ |
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| $ |
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Cost of sales |
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Mine operating income (loss) |
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Operating expenses (income) |
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Accretion of reclamation provision |
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Gain on sale of assets |
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Other items |
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Loss on disposition |
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| - |
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Net loss before income taxes |
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| ( | ) |
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| ( | ) | |
Income taxes |
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Net loss from discontinued operations and on disposal |
| $ |
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| $ | ( | ) |
| $ | ( | ) | |
| The results of discontinued operations included in the consolidated statements of cash flows for the years ended December 31, 2020, 2019 and 2018, are as follows: |
Cash generated by (used in): |
| 2021 |
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| 2020 |
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| 2019 |
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Cash flow used in operating activities |
| $ |
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| $ |
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| $ | ( | ) | ||
Cash flow used in financing activities |
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| ( | ) | ||
Cash flow used in investing activities |
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| ( | ) | ||
Net cash decrease from discontinued operations |
| $ |
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| $ |
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| $ | ( | ) | ||
6. | TAXES RECOVERABLE |
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| The Company’s taxes recoverable consist of the Mexican I.V.A. (“VAT”) and income taxes recoverable and Canadian sales taxes (“GST/HST”) recoverable. |
|
| December 31, 2021 |
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| December 31, 2020 |
| ||
VAT recoverable |
| $ |
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| $ |
| ||
GST recoverable |
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Income taxes recoverable |
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| $ |
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| $ |
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| -19- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
7. | INVENTORY |
|
| December 31, 2021 |
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| December 31, 2020 |
| ||
Process material stockpiles |
| $ | 1,083 |
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| $ | 373 |
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Concentrate inventory |
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Materials and supplies |
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| $ |
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| $ |
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| The amount of inventory recognized as an expense for the year ended December 31, 2021 totalled $7,282 (2020 – $ |
8. | LONG-TERM INVESTMENTS |
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| The Company classifies its long-term investments as designated at fair value through profit and loss under IFRS 9. Long-term investments are summarized as follows: |
|
| Fair Value December 31, |
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| Net Additions |
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| Movements in foreign |
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| Fair value adjustments |
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| Fair Value December 31, |
| |||||
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| 2020 |
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| Exchange |
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| for the period |
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| 2021 |
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Talisker Resources Common Shares |
| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Silver Wolf Exploration Ltd. Common Shares |
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| ( | ) |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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| On March 26, 2021, the Company received
See Note 9 for full details of the Option Agreement, and Note 21(d) for valuation methodology for the share purchase warrants. |
| -20- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
9. | EXPLORATION AND EVALUATION ASSETS |
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| The Company has accumulated the following acquisition, exploration and evaluation costs which are not subject to depletion: |
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| Durango, Mexico |
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| British Columbia Yukon, anada |
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| Total |
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Balance, January 1, 2020 |
| $ |
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| $ |
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| $ |
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Costs incurred during 2020: |
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Drilling and exploration |
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Assessments and taxes |
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Effect of movements in exchange rates |
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Balance, December 31, 2020 |
| $ |
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| $ |
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| $ |
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Costs incurred during 2021: |
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Drilling and exploration |
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Assessments and taxes |
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Effect of movements in exchange rates |
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Option income |
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Balance, December 31, 2021 |
| $ |
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| $ | 1 |
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| $ |
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| Additional information on the Company’s exploration and evaluation properties by region is as follows: | |
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| (a) | Durango, Mexico |
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| The Company’s subsidiary Avino Mexico owns |
| (I) | Avino Mine area property |
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| The Avino Mine area property is situated around the towns of Panuco de Coronado and San Jose de Avino and surrounding the historic Avino mine site. There are four exploration concessions covering |
| -21- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
| (ii) | Gomez Palacio/Ana Maria property |
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| The Ana Maria property is located near the town of Gomez Palacio, and consists of nine exploration concessions covering
Option Agreement – Silver Wolf Exploration Ltd. (formerly Gray Rock Resources Ltd.) (“Silver Wolf”)
On March 11, 2021, the Company was informed that Silver Wolf received TSX Venture Exchange approval on the previously-announced entrance into an option agreement to grant Silver Wolf the exclusive right to acquire a |
| 1. | Issue to Avino a total of C$ |
| a. | C$ |
| b. | A further C$ |
| c. | A further C$ |
| d. | A further C$ |
| e. | A further C$ |
| 2. | Incur a total of C$750 in exploration expenditures on the properties, as follows: |
| a. | C$50 on or before the first anniversary of the Approval Date; |
| b. | A further C$ |
| c. | A further C$ |
|
| Under the Option Agreement, the parties intend that the first two year’s payments (C$200 in cash or shares), and first C$150 in exploration work will be firm commitments by Silver Wolf. All share issuances will be based on the average volume weighted trading price of Silver Wolf’s shares on the TSX Venture Exchange for the ten (10) trading days immediately preceding the date of issuance of the shares, and the shares will be subject to resale restrictions under applicable securities legislation for
The Option Agreement between the Company and Silver Wolf is considered a related party transaction as the two companies have directors in common. |
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| (iii) | Santiago Papasquiaro property |
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| The Santiago Papasquiaro property is located near the village of Santiago Papasquiaro, and consists of four exploration concessions covering |
| -22- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
| (iv) | Unification La Platosa properties |
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| The Unification La Platosa properties, consisting of three leased concessions in addition to the leased concession described in note (i) above, are situated within the Avino Mine area property near the towns of Panuco de Coronado and San Jose de Avino and surrounding the Avino Mine.
In February 2012, the Company’s wholly-owned Mexican subsidiary entered into a new agreement with Minerales de Avino, S.A. de C.V. (“Minerales”) whereby Minerales has indirectly granted to the Company the exclusive right to explore and mine the La Platosa property known as the “ET zone”. The ET zone includes the Avino Mine, where production at levels intended by management was achieved on July 1, 2015.
Under the agreement, the Company has obtained the exclusive right to explore and mine the property for an initial period of 15 years, with the option to extend the agreement for another 5 years. In consideration of the granting of these rights, the Company issued
The Company has agreed to pay to Minerales a royalty equal to
Minerales has also granted to the Company the exclusive right to purchase a |
| (b) | British Columbia, Canada |
| (i) | Minto and Olympic-Kelvin properties |
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| The Company’s mineral claims in British Columbia encompass two additional properties, Minto and Olympic-Kelvin, each of which consists of 100% owned Crown-granted mineral claims located in the Lillooet Mining Division. |
| (c) | Yukon, Canada |
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| The Company has a |
10. | NON-CONTROLLING INTEREST |
|
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| At December 31, 2021, the Company had an effective |
| -23- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
11. | PLANT, EQUIPMENT AND MINING PROPERTIES |
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| Mining properties |
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Office equipment, furniture, and fixtures |
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| Computer equipment |
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| Mine machinery and transportation equipment |
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| Mill machinery and processing equipment |
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| Buildings and construction in process |
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| Total |
| |||||||
|
| $ |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ |
| |||||||
COST |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Additions / Transfers |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| |||||
Effect of movements in exchange rates |
|
|
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| |||
Balance at December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Additions / Transfers |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Effect of movements in exchange rates |
|
|
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
| ||||
Balance at December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCUMULATED DEPLETION AND DEPRECIATION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2020 |
|
| 8,066 |
|
|
| 84 |
|
|
|
|
|
| 4,854 |
|
|
| 4,013 |
|
|
| 1,374 |
|
|
|
| ||
Additions / Transfers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Effect of movements in exchange rates |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Balance at December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Additions / Transfers |
|
| 213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Effect of movements in exchange rates |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Balance at December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET BOOK VALUE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
At December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
At January 1, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
| -24- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
| Included in Buildings above are assets under construction of $
As at December 31, 2021, plant, equipment and mining properties included a net carrying amount of $Nil (2020 - $ |
12. | RELATED PARTY TRANSACTIONS AND BALANCES |
|
|
| All related party transactions are recorded at the exchange amount which is the amount agreed to by the Company and the related party. |
| (a) | Key management personnel |
|
|
|
|
| The Company has identified its directors and certain senior officers as its key management personnel. The compensation costs for key management personnel for the years ended December 31, 2021, 2020 and 2019 is as follows: |
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Salaries, benefits, and consulting fees |
| $ |
|
| $ |
|
| $ |
| |||
Share-based payments |
|
|
|
|
|
|
|
|
| |||
|
| $ |
|
| $ |
|
| $ |
| |||
| (b) | Amounts due to/from related parties |
|
|
|
|
| In the normal course of operations the Company transacts with companies related to Avino’s directors or officers. All amounts payable and receivable are non-interest bearing, unsecured and due on demand. The following table summarizes the amounts due to / (from) related parties: |
|
| December 31, 2021 |
|
| December 31, 2020 |
| ||
Oniva International Services Corp. |
| $ |
|
| $ |
| ||
Directors |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
|
| For services provided to the Company as President and Chief Executive Officer, the Company pays Intermark Capital Corporation (“ICC”), a company controlled by David Wolfin, the Company’s president and CEO and also a director, for consulting services. For the year ended December 31, 2021, 2020 and 2019, the Company paid $239, $224 and $226, respectively, to ICC. |
|
|
|
| (c) | Other related party transactions |
|
|
|
|
| The Company has a cost sharing agreement with Oniva International Services Corp. (“Oniva”) for office and administration services. Pursuant to the cost sharing agreement, the Company will reimburse Oniva for the Company’s percentage of overhead and corporate expenses and for out-of-pocket expenses incurred on behalf of the Company. David Wolfin, President CEO, and a director of the Company, is the sole owner of Oniva. The cost sharing agreement may be terminated with one-month notice by either party without penalty. |
| -25- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
| The transactions with Oniva during the year ended December 31, 2021, 2020 and 2019 are summarized below: |
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Salaries and benefits |
| $ |
|
| $ |
|
| $ |
| |||
Office and miscellaneous |
|
|
|
|
|
|
|
|
| |||
Exploration and evaluation assets |
|
| - |
|
|
| - |
|
|
|
| |
|
| $ |
|
| $ |
|
| $ |
| |||
13. | TERM FACILITY |
|
|
| In July 2015, the Company entered into a ten million dollar term facility with Samsung CT U.K. Limited (“Samsung”).
The facility is secured by the concentrates produced under the agreement and by
The continuity of the term facility with Samsung for the year ended December 31, 2021, and the year ended December 31, 2020, is as follows: |
|
| December 31, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Balance at beginning of the period |
| $ |
|
| $ |
| ||
Repayments |
|
| ( | ) |
|
| ( | ) |
Unwinding of fair value adjustment |
|
| ( | ) |
|
| ( | ) |
Balance at end of the period |
|
| - |
|
|
|
| |
Less: Current portion |
|
| - |
|
|
| ( | ) |
Non-current portion |
| $ | - |
|
| $ | - |
|
| -26- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
14. | WARRANT LIABILITY |
|
|
| The Company’s warrant liability arises as a result of the issuance of warrants exercisable in US dollars. As the denomination is different from the Canadian dollar functional currency of the entity issuing the underlying shares, the Company recognizes a derivative liability for these warrants and re-measures the liability at the end of each reporting period using the Black-Scholes model. Changes in respect of the Company’s warrant liability are as follows: |
|
| December 31, 2021 |
|
| December 31, 2020 |
| ||
Balance at beginning of the period |
| $ |
|
| $ |
| ||
Fair value adjustment |
|
| ( | ) |
|
|
| |
Effect of movement in exchange rates |
|
|
|
|
|
| ||
Balance at end of the period |
| $ |
|
| $ |
| ||
| Continuity of warrants during the periods is as follows: |
|
| Underlying Shares |
|
| Weighted Average Exercise Price |
| ||
Warrants outstanding and exercisable, January 1, 2020 |
|
|
|
| $ |
| ||
Exercised |
|
| ( | ) |
| $ |
| |
Exercised |
|
| ( | ) |
| C$ |
| |
Warrants outstanding and exercisable, December 31, 2020 |
|
|
|
| $ |
| ||
Exercised |
|
| ( | ) |
| $ |
| |
Warrants outstanding and exercisable, December 31, 2021 |
|
|
|
| $ |
| ||
|
| All Warrants Outstanding and Exercisable |
| |||||||||
Expiry Date |
| Exercise Price per Share |
|
| December 31, 2021 |
|
| December 31, 2020 |
| |||
| $ |
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
| ||
| As at December 31, 2021, the weighted average remaining contractual life of warrants outstanding was
Valuation of the warrant liability requires the use of highly subjective estimates and assumptions including the expected stock price volatility. The expected volatility used in valuing warrants is based on volatility observed in historical periods. Changes in the underlying assumptions can materially affect the fair value estimates. The fair value of the warrant liability was calculated using the Black-Scholes model with the following weighted average assumptions and resulting fair values: |
|
| December 31, 2021 |
|
| December 31, 2020 |
| ||
Weighted average assumptions: |
|
|
|
|
|
| ||
Risk-free interest rate |
|
| % |
|
| % | ||
Expected dividend yield |
|
| % |
|
| % | ||
Expected warrant life (years) |
|
|
|
|
|
| ||
Expected stock price volatility |
|
| % |
|
| % | ||
Weighted average fair value |
| $ |
|
| $ |
| ||
| During the year ended December 31, 2021, the Company recorded a realized loss on the exercise of warrants of $ |
| -27- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
15. | RECLAMATION PROVISION |
|
|
| Management’s estimate of the reclamation provision at December 31, 2021, is $
The present value of the obligation was calculated using a risk-free interest rate of
A reconciliation of the changes in the Company’s reclamation provision for the year ended December 31, 2021, and the year ended December 31, 2020, is as follows: |
|
| December 31, 2021 |
|
| December 31, 2020 |
| ||
|
|
|
|
|
|
| ||
Balance at beginning of the period |
| $ |
|
| $ |
| ||
Changes in estimates |
|
| ( | ) |
|
| ( | ) |
Unwinding of discount related to continuing operations |
|
|
|
|
|
| ||
Effect of movements in exchange rates |
|
| ( | ) |
|
| ( | ) |
Balance at end of the period |
| $ |
|
| $ |
| ||
16. | SHARE CAPITAL AND SHARE-BASED PAYMENTS |
| (a) | Authorized: Unlimited common shares without par value. |
|
|
|
| (b) | Issued: |
|
| (i) | During the year ended December 31, 2021, the Company issued 10,050,000 common shares in an at-the-market offering under prospectus supplement for gross proceeds of $19,020. The Company paid a 2.75% cash commission of $
During the year ended December 31, 2021, the Company issued 1,030,362 common shares following the exercise of 1,030,362 warrants. As a result, $1,911 was recorded to share capital, representing cash proceeds of $824, fair value of the warrants on the date of exercise (see Note 14 for valuation methodology of $US denominated warrants) of $1,106, and movements in foreign exchange of $(19).
During the year ended December 31, 2021, the Company issued
During the year ended December 31, 2021, the Company issued 1,330,167 common shares upon exercise of RSUs. As a result, $1,278 was recorded to share capital. |
|
|
|
|
|
| (ii) | During the year ended December 31, 2020, the Company issued 6,730,054 common shares in an at-the-market offering under prospectus supplement for gross proceeds of $4,940. The Company paid a 3% cash commission of $
During the year ended December 31, 2020, the Company issued 4,195,072 common shares following the exercise of 4,195,072 warrants. As a result, $6,112 was recorded to share capital, representing cash proceeds of $ |
| -28- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
|
| During the year ended December 31, 2020, the Company also issued 464,122 common shares following the exercise of 464,122 broker warrants. As a result, $416 was recorded to share capital, representing cash proceeds of $
During the year ended December 31, 2020, the Company issued
During the year ended December 31, 2020, the Company issued
During the year ended December 31, 2020, the Company issued 863,901 common shares upon exercise of RSUs. As a result, $ |
| (c) | Stock options: |
|
|
|
|
| The Company has a stock option plan to purchase the Company’s common shares, under which it may grant stock options of up to 10% of the Company’s total number of shares issued and outstanding on a non-diluted basis. The stock option plan provides for the granting of stock options to directors, officers, and employees, and to persons providing investor relations or consulting services, the limits being based on the Company’s total number of issued and outstanding shares per year. The stock options vest on the date of grant, except for those issued to persons providing investor relations services, which vest over a period of one year. The option price must be greater than or equal to the discounted market price on the grant date, and the option term cannot exceed ten years from the grant date.
Continuity of stock options is as follows: |
|
| Underlying Shares |
|
| Weighted Average Exercise Price (C$) |
| ||
|
|
|
|
|
|
| ||
Stock options outstanding, January 1, 2020 |
|
|
|
| $ |
| ||
Granted |
|
|
|
| $ |
| ||
Exercised |
|
| ( | ) |
| $ |
| |
Cancelled / Forfeited |
|
| ( | ) |
| $ |
| |
Stock options outstanding, December 31, 2020 |
|
|
|
| $ |
| ||
Exercised |
|
| ( | ) |
| $ |
| |
Expired |
|
| ( | ) |
| $ |
| |
Cancelled / Forfeited |
|
| ( | ) |
| $ |
| |
Stock options outstanding, December 31, 2021 |
|
|
|
| $ |
| ||
Stock options exercisable, December 31, 2021 |
|
|
|
| $ |
| ||
| -29- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
| The following table summarizes information about the stock options outstanding and exercisable at December 31, 2021: |
|
|
|
| Outstanding |
|
| Exercisable |
| ||||||||||||
Expiry Date |
| Price (C$) |
|
| Number of Options |
|
| Weighted Average Remaining Contractual Life (Years) |
|
| Number of Options |
|
| Weighted Average Remaining Contractual Life (Years) |
| |||||
| $ |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| $ |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| $ |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| $ |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| During the year ended December 31, 2021, the Company charged $ |
|
|
(d) | Restricted Share Units: |
|
|
| On April 19, 2018, the Company’s Restricted Share Unit (“RSU”) Plan was approved by its shareholders. The RSU Plan is administered by the Compensation Committee under the supervision of the Board of Directors as compensation to officers, directors, consultants, and employees. The Compensation Committee determines the terms and conditions upon which a grant is made, including any performance criteria or vesting period.
Upon vesting, each RSU entitles the participant to receive one common share, provided that the participant is continuously employed with or providing services to the Company. RSUs track the value of the underlying common shares, but do not entitle the recipient to the underlying common shares until such RSUs vest, nor do they entitle a holder to exercise voting rights or any other rights attached to ownership or control of the common shares, until the RSU vests and the RSU participant receives common shares.
Continuity of RSUs is as follows: |
|
| Underlying Shares |
|
| Weighted Average Price (C$) |
| ||
|
|
|
|
|
|
| ||
RSUs outstanding, January 1, 2020 |
|
|
|
| $ |
| ||
Granted |
|
|
|
| $ |
| ||
Exercised |
|
| ( | ) |
| $ |
| |
Cancelled / Forfeited |
|
| ( | ) |
| $ |
| |
RSUs outstanding, December 31, 2020 |
|
|
|
| $ |
| ||
Exercised |
|
| ( | ) |
| $ |
| |
Cancelled / Forfeited |
|
| ( | ) |
| $ |
| |
RSUs outstanding, December 31, 2021 |
|
|
|
| $ |
| ||
| The following table summarizes information about the RSUs outstanding at December 31, 2021: |
Issuance Date |
| Price (C$) |
|
| Number of RSUs Outstanding |
| ||
| $ |
|
|
|
| |||
| $ |
|
|
|
| |||
|
|
|
|
|
|
|
| |
| -30- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
| During the year ended December 31, 2021, no RSUs (year ended December 31, 2020 –
During the year ended December 31, 2021, the Company charged $ |
|
|
(e) | Earnings (loss) per share: |
|
|
| The calculations for basic earnings (loss) per share and diluted earnings (loss) per share are as follows: |
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Net loss from continuing operations for the period |
| $ | ( | ) |
| $ | (7,482 | ) |
| $ | ( | ) |
Net loss for the period |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Basic weighted average number of shares outstanding |
|
|
|
|
|
|
|
|
| |||
Effect of dilutive share options, warrants, and RSUs (‘000) |
|
| - |
|
|
| - |
|
|
| - |
|
Diluted weighted average number of shares outstanding |
|
|
|
|
|
|
|
|
| |||
Basic loss from continuing operations per share |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Diluted loss from continuing operations per share |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Basic loss per share |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Diluted loss per share |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
17. | REVENUE AND COST OF SALES |
|
|
| The Company’s revenues for the year ended December 31, 2021, 2020 and 2019 are all attributable to Mexico, from shipments of concentrate from the Avino Mine, and processing of Historical Above Ground Stockpiles. |
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Concentrate sales |
| $ |
|
| $ |
|
| $ | 31,417 |
| ||
Provisional pricing adjustments |
|
|
|
|
|
|
|
|
| |||
|
| $ |
|
| $ |
|
| $ |
| |||
| Cost of sales consists of changes in inventories, direct costs including personnel costs, mine site costs, energy costs (principally diesel fuel and electricity), maintenance and repair costs, operating supplies, external services, third party transport fees, depreciation and depletion, and other expenses for the periods. Direct costs include the costs of extracting co-products. Stand-by costs consist of care and maintenance costs incurred during the work stoppages at the Avino Mine during the year ended December 31, 2021 and 2020. |
| -31- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
| Cost of sales is based on the weighted average cost of inventory sold for the periods and consists of the following: |
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Production costs |
| $ |
|
| $ | 11,443 |
|
| $ |
| ||
Stand-by costs |
|
|
|
|
|
|
|
| - |
| ||
Inventory net realizable adjustment |
|
| - |
|
|
| - |
|
|
|
| |
Depreciation and depletion |
|
|
|
|
|
|
|
|
| |||
|
| $ |
|
| $ |
|
| $ |
| |||
18. | GENERAL AND ADMINISTRATIVE EXPENSES |
|
|
| General and administrative expenses on the consolidated statements of operations consist of the following: |
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Salaries and benefits |
| $ |
|
| $ |
|
| $ |
| |||
Office and miscellaneous |
|
|
|
|
| 117 |
|
|
|
| ||
Management and consulting fees |
|
|
|
|
|
|
|
|
| |||
Professional fees |
|
|
|
|
|
|
|
|
| |||
Investor relations |
|
|
|
|
|
|
|
|
| |||
Directors fees |
|
|
|
|
|
|
|
|
| |||
Regulatory and compliance fees |
|
|
|
|
|
|
|
|
| |||
Depreciation |
|
|
|
|
|
|
|
|
| |||
Travel and promotion |
|
|
|
|
|
|
|
|
| |||
|
| $ |
|
| $ |
|
| $ |
| |||
19. | COMMITMENTS |
|
|
| The Company has a cost sharing agreement to reimburse Oniva for a percentage of its overhead expenses, to reimburse 100% of its out-of-pocket expenses incurred on behalf of the Company, and to pay a percentage fee based on Oniva’s total overhead and corporate expenses. The agreement may be terminated with one-month notice by either party. Transactions and balances with Oniva are disclosed in Note 12.
The Company and its subsidiaries have various operating lease agreements for their office premises, use of land, and equipment. Commitments in respect of these lease agreements are as follows: |
|
| December 31, 2021 |
|
| December 31, 2020 |
| ||
Not later than one year |
| $ |
|
| $ |
| ||
Later than one year and not later than five years |
|
|
|
|
|
| ||
Later than five years |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
| Office lease payments recognized as an expense during the year ended December 31, 2021, totalled $ |
| -32- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
20. | SUPPLEMENTARY CASH FLOW INFORMATION |
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Net change in non-cash working capital items: |
|
|
|
|
|
|
|
|
| |||
Deferred revenues |
| $ | - |
|
| $ | - |
|
| $ | ( | ) |
Accounts payable and accrued liabilities |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Prepaid expenses and other assets |
|
| ( | ) |
|
| ( | ) |
|
|
| |
Amounts receivable |
|
| ( | ) |
|
|
|
|
|
| ||
Taxes payable |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Amounts due to related parties |
|
|
|
|
|
|
|
|
| |||
Taxes recoverable |
|
|
|
|
|
|
|
| ( | ) | ||
Other liabilities |
|
| - |
|
|
| ( | ) |
|
| ( | ) |
Inventory |
|
| ( | ) |
|
|
|
|
|
| ||
|
| $ | ( | ) |
| $ |
|
| $ |
| ||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Interest paid |
| $ |
|
| $ |
|
| $ |
| |||
Taxes paid |
| $ |
|
| $ |
|
| $ |
| |||
Equipment acquired under finance leases and equipment loans |
| $ |
|
| $ | - |
|
| $ |
| ||
21. | FINANCIAL INSTRUMENTS |
|
|
| The fair values of the Company’s amounts due to related parties and accounts payable approximate their carrying values because of the short-term nature of these instruments. Cash, amounts receivable, long-term investments, and warrant liability are recorded at fair value. The carrying amounts of the Company’s term facility, equipment loans, and finance lease obligations are a reasonable approximation of their fair values based on current market rates for similar financial instruments.
The Company’s financial instruments are exposed to certain financial risks, including credit risk, liquidity risk, and market risk. |
| (a) | Credit Risk |
|
|
|
|
| Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Company has exposure to credit risk through its cash, long-term investments and amounts receivable. The Company manages credit risk, in respect of cash and short-term investments, by maintaining the majority of cash and short-term investments at highly rated financial institutions.
The Company is exposed to a significant concentration of credit risk with respect to its trade accounts receivable balance because all of its concentrate sales are with two (December 31, 2020 – three) counterparty (see Note 23). However, the Company has not recorded any allowance against its trade receivables because to-date all balances owed have been settled in full when due (typically within 60 days of submission) and because of the highly-rated nature of the counterparties.
The Company’s maximum exposure to credit risk at the end of any period is equal to the carrying amount of these financial assets as recorded in the audited consolidated statement of financial position. At December 31, 2021, no amounts were held as collateral. |
| -33- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
| (b) | Liquidity Risk |
|
|
|
|
| Liquidity risk is the risk that the Company will encounter difficulty in satisfying financial obligations as they become due. The Company manages its liquidity risk by forecasting cash flows required by its operating, investing and financing activities. The Company had cash at December 31, 2021, in the amount of $
The maturity profiles of the Company’s contractual obligations and commitments as at December 31, 2021, are summarized as follows: |
|
| Total |
|
| Less Than 1 Year |
|
| 1-5 years |
|
| More Than 5 Years |
| ||||
Accounts payable and accrued liabilities |
| $ |
|
| $ |
|
| $ | - |
|
| $ | - |
| ||
Amounts due to related parties |
|
|
|
|
|
|
|
| - |
|
|
| - |
| ||
Minimum rental and lease payments |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Finance lease obligations |
|
|
|
|
|
|
|
|
|
|
| - |
| |||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| (c) | Market Risk |
|
|
|
|
| Market risk consists of interest rate risk, foreign currency risk and price risk. These are discussed further below.
Interest Rate Risk
Interest rate risk consists of two components: |
| (i) | To the extent that payments made or received on the Company’s monetary assets and liabilities are affected by changes in the prevailing market interest rates, the Company is exposed to interest rate cash flow risk. |
|
|
|
| (ii) | To the extent that changes in prevailing market rates differ from the interest rates on the Company’s monetary assets and liabilities, the Company is exposed to interest rate price risk. |
| -34- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
| In management’s opinion, the Company is exposed to interest rate risk primarily on its outstanding term facility, as the interest rate is subject to floating rates of interest. A 10% change in the interest rate would not result in a material impact on the Company’s operations.
Foreign Currency Risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in foreign exchange rates. The Company is exposed to foreign currency risk to the extent that the following monetary assets and liabilities are denominated in Mexican pesos and Canadian dollars: |
|
| December 31, 2021 |
|
| December 31, 2020 |
| ||||||||||
|
| MXN |
|
| CDN |
|
| MXN |
|
| CDN |
| ||||
Cash |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Long-term investments |
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||
Reclamation bonds |
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||
Amounts receivable |
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||
Accounts payable and accrued liabilities |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Due to related parties |
|
| - |
|
|
| ( | ) |
|
| - |
|
|
| ( | ) |
Finance lease obligations |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Net exposure |
|
| ( | ) |
|
|
|
|
|
|
|
|
| |||
US dollar equivalent |
| $ | ( | ) |
| $ | ( | ) |
| $ |
|
| $ |
| ||
| Based on the net US dollar denominated asset and liability exposures as at December 31, 2021, a
Price Risk
Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices, other than those arising from interest rate risk or foreign currency risk.
The Company is exposed to price risk with respect to its amounts receivable, as certain trade accounts receivable are recorded based on provisional terms that are subsequently adjusted according to quoted metal prices at the date of final settlement. Quoted metal prices are affected by numerous factors beyond the Company’s control and are subject to volatility, and the Company does not employ hedging strategies to limit its exposure to price risk. At December 31, 2021, based on outstanding accounts receivable that were subject to pricing adjustments,
The Company is exposed to price risk with respect to its long-term investments, as these investments are carried at fair value based on quoted market prices. Changes in market prices result in gains or losses being recognized in net income (loss). At December 31, 2021, a
The Company’s profitability and ability to raise capital to fund exploration, evaluation and production activities is subject to risks associated with fluctuations in mineral prices. Management closely monitors commodity prices, individual equity movements, and the stock market to determine the appropriate course of action to be taken by the Company.
|
| -35- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
| (d) | Classification of Financial Instruments |
|
|
|
|
| IFRS 7 Financial Instruments: Disclosures establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value as follows:
Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 – inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The following table sets forth the Company’s financial assets and financial liabilities measured at fair value on a recurring basis by level within the fair value hierarchy as at December 31, 2021: |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||
Financial assets |
|
|
|
|
|
|
|
|
| |||
Cash |
| $ |
|
| $ | - |
|
| $ | - |
| |
Amounts receivable |
|
| - |
|
|
|
|
|
| - |
| |
Long-term investments |
|
|
|
|
| - |
|
|
| - |
| |
Total financial assets |
| $ |
|
| $ |
|
| $ | - |
| ||
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability |
|
| - |
|
|
| - |
|
|
| ( | ) |
Total financial liabilities |
| $ | - |
|
| $ | - |
|
| $ | ( | ) |
| The Company uses Black-Scholes model to measure its Level 3 financial instruments. As at December 31, 2021, the Company’s Level 3 financial instruments consisted of the warrant liability.
For the Company’s warrant liability valuation and fair value adjustments during the years ended December 31, 2021 and 2020, see Note 14 of the consolidated financial statements. |
| -36- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
22. | CAPITAL MANAGEMENT |
|
|
| The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to pursue the exploration and expansion of its properties and to maintain a flexible capital structure for its projects for the benefit of its stakeholders. In the management of capital, the Company includes equity (comprising of all issued share capital, equity reserves, retained earnings or accumulated deficit, and other comprehensive income (loss)), the term facility, equipment loan obligations, and finance lease, are listed as follows: |
|
| December 31, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Equity |
| $ |
|
| $ |
| ||
Term Facility |
|
| - |
|
|
|
| |
Finance Lease Obligations |
|
|
|
|
|
| ||
Equipment Loans |
|
| - |
|
|
|
| |
|
| $ |
|
| $ |
| ||
| The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust its capital structure, the Company may attempt to incur new debt or issue new shares. Management reviews the Company’s capital structure on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. At December 31, 2021, the Company expects its capital resources and projected future cash flows from operations to support its normal operating requirements on an ongoing basis, and planned development and exploration of its mineral properties and other expansionary plans. At December 31, 2021, there was no externally imposed capital requirement to which the Company was subject and with which the Company did not comply. |
23. | SEGMENTED INFORMATION |
|
|
| The Company’s revenues for the year ended December 31, 2021, of $
On the consolidated statements of operations, the Company had revenue from the following product mixes: |
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Silver |
| $ |
|
| $ |
|
| $ |
| |||
Copper |
|
|
|
|
|
|
|
|
| |||
Gold |
|
|
|
|
|
|
|
|
| |||
Penalties, treatment costs and refining charges |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Total revenue from mining operations |
| $ |
|
| $ |
|
| $ |
| |||
| -37- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
| For the year ended December 31, 2021, the Company had three customers (2020 – three customers, 2019 – six customers) that accounted for total revenues as follows: |
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Customer #1 |
| $ |
|
| $ | - |
|
| $ | - |
| |
Customer #2 |
|
|
|
|
|
|
|
|
| |||
Customer #3 |
|
|
|
|
|
|
|
|
| |||
Customer #4 |
|
| - |
|
|
| ( | ) |
|
|
| |
Customer #5 |
|
| - |
|
|
|
|
|
|
| ||
Customer #6 |
|
| - |
|
|
| - |
|
|
|
| |
Customer #7 |
|
| - |
|
|
| - |
|
|
|
| |
Customer #8 |
|
| - |
|
|
| - |
|
|
| - |
|
Total revenue from mining operations |
| $ |
|
| $ |
|
| $ |
| |||
| Geographical information relating to the Company’s non-current assets (other than financial instruments) is as follows: |
|
| December 31, 2021 |
|
| December 31, 2020 |
| ||
Exploration and evaluation assets - Mexico |
| $ |
|
| $ |
| ||
Exploration and evaluation assets - Canada |
|
|
|
|
|
| ||
Total exploration and evaluation assets |
| $ |
|
| $ |
| ||
|
| December 31, 2021 |
|
| December 31, 2020 |
| ||
Plant, equipment, and mining properties - Mexico |
| $ |
|
| $ |
| ||
Plant, equipment, and mining properties - Canada |
|
|
|
|
|
| ||
Total plant, equipment, and mining properties |
| $ |
|
| $ |
| ||
| -38- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
24. | INCOME TAXES |
| (a) | Income tax expense |
|
|
|
|
| Income tax expense included in the consolidated statements of operations and comprehensive income (loss) is as follows: |
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Current income tax expense |
| $ |
|
| $ |
|
| $ |
| |||
Deferred income tax expense (recovery) |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Total income tax expense (recovery) |
| $ |
|
| $ | ( | ) |
| $ | ( | ) | |
| The reconciliation of income taxes calculated at the Canadian statutory tax rate to the income tax expense recognized in the year is as follows: |
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Net income (loss) before income taxes |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Net loss from discontinued operations before income taxes |
|
| - |
|
|
| ( | ) |
|
| ( | ) |
Net income (loss) before income taxes |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Combined statutory tax rate |
|
| % |
|
| % |
|
| % | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (recovery) at the Canadian statutory rate |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciling items: |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of difference in foreign tax rates |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Non-deductible/non-taxable items |
|
|
|
|
|
|
|
|
| |||
Change in unrecognized deductible temporary differences |
|
|
|
|
|
|
|
|
| |||
Impact of foreign exchange |
|
|
|
|
| ( | ) |
|
|
| ||
Special mining duties |
|
|
|
|
| ( | ) |
|
|
| ||
Revisions to estimates |
|
|
|
|
| ( | ) |
|
|
| ||
Share issue costs |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Other items |
|
| ( | ) |
|
| ( | ) |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (recovery) recognized in the year |
| $ |
|
| $ | ( | ) |
| $ | ( | ) | |
| The Company recognized a non-cash recovery of $Nil for the year ended December 31, 2021 (2020 – expense of $ |
|
| December 31, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Deferred income tax assets |
| $ |
|
| $ |
| ||
Deferred income tax liabilities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
| $ | ( | ) |
| $ | ( | ) |
| -39- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
| The approximate tax effects of each type of temporary difference that gives rise to potential deferred income tax assets and liabilities are as follows: |
|
| December 31, 2021 |
|
| December 31, 2020 |
| ||
|
|
|
|
|
|
| ||
Reclamation provision |
| $ |
|
| $ |
| ||
Non-capital losses |
|
|
|
|
|
| ||
Other deductible temporary differences |
|
|
|
|
|
| ||
Inventory |
|
| - |
|
|
| ( | ) |
Exploration and evaluation assets |
|
| ( | ) |
|
| ( | ) |
Plant, equipment and mining properties |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Net deferred income tax liabilities |
| $ | ( | ) |
| $ | ( | ) |
|
| The net deferred tax liability presented in these consolidated financial statements is due to the difference in the carrying amounts and tax bases of the Mexican plant, equipment and mining properties which were acquired in the purchase of Avino Mexico. The carrying values of the Mexican plant, equipment and mining properties includes an estimated fair value adjustment recorded upon the July 17, 2006, acquisition of control of Avino Mexico that was based on a share exchange, while the tax bases of these assets are historical undeducted tax amounts that were nil on acquisition. The deferred tax liability is attributable to assets in the tax jurisdiction of Mexico. |
|
|
|
| (b) | Unrecognized deductible temporary differences: |
|
|
|
|
| Temporary differences and tax losses arising in Canada have not been recognized as deferred income tax assets due to the fact that management has determined it is not probable that sufficient future taxable profits will be earned in Canada to recover such assets. Unrecognized deductible temporary differences are summarized as follows: |
|
| December 31, 2021 |
|
| December 31, 2020 |
| ||
|
|
|
|
|
|
| ||
Tax losses carried forward |
| $ |
|
| $ |
| ||
Share issue costs |
|
|
|
|
|
| ||
Plant, equipment and mining properties |
|
|
|
|
|
| ||
Exploration and evaluation assets |
|
|
|
|
|
| ||
Investments |
|
| ( | ) |
|
| ( | ) |
Reclamation provision and other |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Unrecognized deductible temporary differences |
| $ |
|
| $ |
| ||
| The Company has capital losses of $ |
| -40- |
AVINO SILVER GOLD MINES LTD. Notes to the consolidated financial statements For the years ended December 31, 2021, 2020 and 2019 (Expressed in thousands of US dollars, except where otherwise noted) |
25. | PENDING TRANSACTION |
|
|
| Pending acquisition of La Preciosa – On October 27, 2021, the Company announced it has entered into a share purchase agreement (the “Transaction”) to indirectly acquire through the purchase of the shares of certain holding companies, the La Preciosa Property (“La Preciosa”) from Coeur Mining, Inc. (“Coeur”).
Consideration of $
Additionally, Avino will issue
Contingent cash consideration of US$
So long as Coeur holds
The completion of the proposed Transaction is subject to a number of customary conditions precedent, as well as, the authorization of the Mexican Federal Economic Competition Commission, approval of the issuance of the Unit consideration and contingent payment amount by the NYSE American, the Toronto Stock Exchange, and any other necessary third party approvals. The Closing of the Transaction is expected to occur during Q1 2022. |
| -41- |
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
| AVINO SILVER GOLD MINES LTD. |
| |
|
|
|
|
Date: March 30, 2022 | By: | /s/ David Wolfin |
|
|
| David Wolfin, Chief Executive Officer |
|
|
| (Principal Executive Officer) |
|
| 83 |